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Someone is messing with FFH.TO


Smazz
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yes, I know, its up and downs but the latest trading patterns leave me to go :-\

 

Ive owned this company off and on for the better part of a decade.

 

Something smells fishy with the market value of late. When there is good general high tide news, FFH trades down, when there is low tide news, FFH trades down again.

 

Thoughts of late?

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The Canadian dollar is now starting to have an impact as well.  It has gone up 2% since yesterday, which impacts the book value of the US based businesses.  If this trend continues in the coming weeks then we could see new lows for Canadian investors.  This won't impact the US investors.

 

 

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Smazz, with the shares no longer listed in the US my guess is we will need more time to get a handle on how the shares will trade in the short term. I am expecting less volatility (i.e. 20% moves in a week or two in both directions).

 

It does not surprise me to see the shares trending lower currently. First, delisting from the NYSE likely has reduced demand; given the higher supply of shares price drifting lower makes sense. Also, we are currently in a soft market where underwriting results will be poor. Yes, interest & dividend income will be OK; however, runoff continues to be a drag. And the equity portfolio appreciation has been captured in current BV per sahre. And the reinsurance and P&C insurers are severely out of favour with Mr. Market.

 

The only thing I can see today that will move the shares higher in a meaningful way are share buybacks by FFH and that does not appear likely given that they just issued $200 million at US$355. However, if the shares continue lower at some point FFH will buy a bunch and we will see the stock move much higher and quickly.

 

Medium term (12 to 24 months out), there is a reasonable chance that the market will turn from soft to hard and then times will be good again. Or perhaps the equity markets will surprise to the upside and BV growth in FFH will grow...

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Guys, most insurers are good buy right now. I don't see why anybody is complainning... what happened to buy low sell high? If I can buy a quality business like FFH under BV that is a steal in my opinion. It's a cyclical company and you should embrace it, it's not like the insurance business is going away.

 

If you used a 5% BV appreciation for the next 10 years and in that period the P/BV should get aound 1.5 once then that gives us the following return depending on when it reaches it's 1.5 BV trigger.

 

Years to reach 1.5BV

Amount invested 1 2 3 4 5 6 7 8 9 10

1000 1575 1653.75 1736.4375 1823.259375 1914.422344 2010.143461 2110.650634 2216.183166 2326.992324 2443.34194

CAGR 58% 29% 20% 16% 14% 12% 11% 10% 10% 9%

 

Sorry for the table formatting, I didn't know how to put it formatted.

 

So, from my point of view this is more then adequate investment.

 

BeerBaron

 

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Beerbaron, I agree that insurers are a good buy right now. They are trading at historic lows (price to BV) and appear to provide a solid margin of safety at currently levels. Yes the near term is cloudy. But the is looking VERY good looking out 1 to 3 years.

 

My portfolio now has about 30% insurance (17% FFH, 7% WRB and 5% PRE), 10% US multinationals (mostly KFT & JNJ and a little WMT) and 60% cash. I sold my BRK recently and bought more FFH and established positions in WRB & PRE (all below or slightly above BV).

 

I am looking to add to insurers should they sell off but would like to diversify into a few more names; hence my repeated requests for insurers others like that I can research (like Lancashire).  

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Beerbaron, I agree that insurers are a good buy right now. They are trading at historic lows (price to BV) and appear to provide a solid margin of safety at currently levels. Yes the near term is cloudy. But the is looking VERY good looking out 1 to 3 years.

 

My portfolio now has about 30% insurance (17% FFH, 7% WRB and 5% PRE), 10% US multinationals (mostly KFT & JNJ and a little WMT) and 60% cash. I sold my BRK recently and bought more FFH and established positions in WRB & PRE (all below or slightly above BV).

 

I am looking to add to insurers should they sell off but would like to diversify into a few more names; hence my repeated requests for insurers others like that I can research (like Lancashire).  

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Beerbaron, I agree that insurers are a good buy right now. They are trading at historic lows (price to BV) and appear to provide a solid margin of safety at currently levels. Yes the near term is cloudy. But the is looking VERY good looking out 1 to 3 years.

 

My portfolio now has about 30% insurance (17% FFH, 7% WRB and 5% PRE), 10% US multinationals (mostly KFT & JNJ and a little WMT) and 60% cash. I sold my BRK recently and bought more FFH and established positions in WRB & PRE (all below or slightly above BV).

 

I am looking to add to insurers should they sell off but would like to diversify into a few more names; hence my repeated requests for insurers others like that I can research (like Lancashire).  

sorry about that ,fat thumbs. Viking it has bee mentioned on previous threads but I have recently purchased shares in E L Financial.  It is the cheapest P/BV quality insurer I am aware of . I can not find much fault with this company at any level except the fact it trades by appointment.

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yes, I know, its up and downs but the latest trading patterns leave me to go :-\

 

Ive owned this company off and on for the better part of a decade.

 

Something smells fishy with the market value of late. When there is good general high tide news, FFH trades down, when there is low tide news, FFH trades down again.

 

Thoughts of late?

 

 

Almost certainly reduced liquidity/demand after delisting from NYSE.  Contrast to BRK's increased liquidity/demand after B shares split and announcement of joining S&P 500.

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yes, I know, its up and downs but the latest trading patterns leave me to go :-\

 

Ive owned this company off and on for the better part of a decade.

 

Something smells fishy with the market value of late. When there is good general high tide news, FFH trades down, when there is low tide news, FFH trades down again.

 

Thoughts of late?

 

 

Almost certainly reduced liquidity/demand after delisting from NYSE.  Contrast to BRK's increased liquidity/demand after B shares split and announcement of joining S&P 500.

 

 

Yeah, the reduced liquidity and trading volumes may make for quiet price action.  On the other hand, the US$10 divvy effectively puts a floor on FFH's trading price.  Once that dividend yield heads north of 3% it starts to become something of a dividend stock and attracts a different collection of buyers!

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ubuy2wron, I decided to look into EL Financial tonight and while their long term track record looks to be pretty decent, their past 6 quarters look pretty miserable (in aggregate). Most importantly looking into the future, their underwriting results look quite poor and their investment results also do not inspire a lot of confidence.

 

Of interest, their general insurance results are especially poor; I wonder if E-L is not one of the companies in the Canadian P&C space that has been undisciplined on the underwriting side as they are actually growing their business and posting an increasing underwriting loss.

 

I am not trying to be too critical but can you help me understand why you view this co is a good investment? Q4 results should come out soon and that will help us understand if underwriting is a problem or if the trend is improving.

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ubuy2wron, I decided to look into EL Financial tonight and while their long term track record looks to be pretty decent, their past 6 quarters look pretty miserable (in aggregate). Most importantly looking into the future, their underwriting results look quite poor and their investment results also do not inspire a lot of confidence.

 

Of interest, their general insurance results are especially poor; I wonder if E-L is not one of the companies in the Canadian P&C space that has been undisciplined on the underwriting side as they are actually growing their business and posting an increasing underwriting loss.

 

I am not trying to be too critical but can you help me understand why you view this co is a good investment? Q4 results should come out soon and that will help us understand if underwriting is a problem or if the trend is improving.

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ubuy2wron, I decided to look into EL Financial tonight and while their long term track record looks to be pretty decent, their past 6 quarters look pretty miserable (in aggregate). Most importantly looking into the future, their underwriting results look quite poor and their investment results also do not inspire a lot of confidence.

 

Of interest, their general insurance results are especially poor; I wonder if E-L is not one of the companies in the Canadian P&C space that has been undisciplined on the underwriting side as they are actually growing their business and posting an increasing underwriting loss.

 

I am not trying to be too critical but can you help me understand why you view this co is a good investment? Q4 results should come out soon and that will help us understand if underwriting is a problem or if the trend is improving.

Sorry fat thumbs again . Viking , My basic arguement is margin of saftey this is trading @ .65 BV the discount to BV is not readily apparent because the number of shares outstanding is overstated. They are a very conservatively managed and structured company. They are controlled by the Jackman family which has been involved in the longest running creeping take over in history. I do not for a second believe that this company has become permanently stupid on the underwriting side, on the investment side they in fact farm out the investment management of some of their float and two non arms length investment trusts.
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Sorry fat thumbs again . Viking , My basic arguement is margin of saftey this is trading @ .65 BV the discount to BV is not readily apparent because the number of shares outstanding is overstated. They are a very conservatively managed and structured company. They are controlled by the Jackman family which has been involved in the longest running creeping take over in history. I do not for a second believe that this company has become permanently stupid on the underwriting side, on the investment side they in fact farm out the investment management of some of their float and two non arms length investment trusts.

 

Viking why do you say they shares outstanding is overstated? Is it because their subsidies own shares of EL?

 

I have setup table here with historical BV for EL

 

Year BV Stock Price Outstanding Market Value Price/BV

1997 $667,634,000 $228.50 3840233.00 $877,493,241 1.31

1998 $951,114,000 $215.00 3840248.00 $825,653,320 0.87

1999 $1,001,548,000 $140.00 3840248.00 $537,634,720 0.54

2000 $1,139,691,000 $200.00 3840240.00 $768,048,000 0.67

2001 $1,250,974,000 $202.53 3840248.00 $777,765,427 0.62

2002 $1,267,385,000 $225.00 3840248.00 $864,055,800 0.68

2003 $1,375,394,000 $305.00 3840248.00 $1,171,275,640 0.85

2004 $1,682,143,000 $337.77 4019409.00 $1,357,635,778 0.81

2005 $1,915,670,000 $535.00 3870887.00 $2,070,924,545 1.08

2006 $2,397,721,000 $638.00 4019409.00 $2,564,382,942 1.07

2007 $2,700,446,000 $565.00 4019409.00 $2,270,966,085 0.84

2008 $2,217,199,000 $450.00 4019409.00 $1,808,734,050 0.82

2009 $2,430,110,000 $460.00 4019409.00 $1,848,928,140 0.76 ---- Estimated

 

Current P/BV 0.71

Average P/BV 0.84

Median P/BV .82

Min P/BV 0.54

Max P/BV 1.31

 

So from this table it is about 15% below it's historical P/BV, not crazy cheap but ok. So if you care to expand on the overstating of shares outstanding I would be happy to add another column called corrected shares outstanding.

 

BeerBaron

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I posted a while back on ELF. In my posts I too made the assertion that since the company reported earnings on a "Adjusted Common Shares outstanding" basis (deducting indirectly owned shares in itself), that was akin to shares held in treasury. In that case, book value per share should be revised upward. However, I have since changed my mind. The reason being that if the indirectly owned shares were really 'treasury shares' then cash paid for dividends to common shareholders would be reduced, or Adjusted dividends per share should be higher. 

 

Example: Cash paid for dividends to common shareholders in 2008 = $2.01 million (equivalent to $0.50/sh on 4.019409 million common shares). The company should have paid only about $1.7 million in cash for $0.50/share on "Adjusted Common Shares outstanding". That, or a shareholder should have received $0.60/share in dividends on Adjusted Shares, if $2.01 million was paid out - which did not happen.

 

The indirectly owned shares are collecting dividends 'outside' of ELF, therefore, those same shares are also collecting earnings 'outside'. To me, that means that the "Adjusted Common Shares outstanding" that the company states in its financial reporting is simply an accounting rule used to suggest a certain amount of control, but does not improve the economics for other common shareholders.

 

That said, the company is still undervalued, in my estimation, just not wildly.

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I posted a while back on ELF. In my posts I too made the assertion that since the company reported earnings on a "Adjusted Common Shares outstanding" basis (deducting indirectly owned shares in itself), that was akin to shares held in treasury. In that case, book value per share should be revised upward. However, I have since changed my mind. The reason being that if the indirectly owned shares were really 'treasury shares' then cash paid for dividends to common shareholders would be reduced, or Adjusted dividends per share should be higher. 

 

Example: Cash paid for dividends to common shareholders in 2008 = $2.01 million (equivalent to $0.50/sh on 4.019409 million common shares). The company should have paid only about $1.7 million in cash for $0.50/share on "Adjusted Common Shares outstanding". That, or a shareholder should have received $0.60/share in dividends on Adjusted Shares, if $2.01 million was paid out - which did not happen.

ALC

The indirectly owned shares are collecting dividends 'outside' of ELF, therefore, those same shares are also collecting earnings 'outside'. To me, that means that the "Adjusted Common Shares outstanding" that the company states in its financial reporting is simply an accounting rule used to suggest a certain amount of control, but does not improve the economics for other common shareholders.

 

That said, the company is still undervalued, in my estimation, just not wildly.

When ever I start to think about ELF my head starts to hurt. It is complicated and I suspect it is complicated by design. ELF owns shares in subsidiaries which in turn owns shares in ELF the companies involved include Economic Investment Trust EVT, United Corporations UNC and Algoma Central ALC. When calculating BVPS I use the same number as foot noted by the co as the number used for reporting EPS, which is approximately 1 million less than shares appearing in annual report as outstanding. Using this methodolgy plus using a sum of the parts approach I suspect that a very large margin of saftey exists in this name. I think their insurance subs would sell for a significant premium to book as would ALC while their investment trust subs will never trade at a premium to BV they are constantly repurchasing public interest at large discounts to BV. 
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Hey, Im bored - notices some bipolar stuff happening on the market pricing last few days.

I had to sell some FFH for some short term obligations I had, then would get right back in - not thinking much will happen share price wise- but i noticed today ohhh some swingin' goin on ;D

 

And Im not talking Tiger Woods type swinging.

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And Im not talking Tiger Woods type swinging.

 

 

 

Ummm...  Tiger Woods appears to do several different types of swinging, and only rarely is a golf club involved!  ;D ;D

 

SJ

Its funny, on Sportscenter they stated "Tiger will be coming back, and he will start with his swing coach"

 

and I thought "dang, the last thing that guy is someone to teach him how to swing better" hahaha

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Guest ValueCarl

When do these $355 equity lenders stop distributing their stock? Are they more than half way done yet? You Canucks should do better, otherwise, come back to the good ole USA! If it weren't for the strength of my US currency recently, I'd be really MAD!!!!!!!!  >:( 

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