Fairfax 2024

[gfp]

1 minute ago, TwoCitiesCapital said:

Going to be honest - the share price reaction to an a amazing earnings report is a bit disappointing

 

Makes me wonder if 1) the market had it "right" and the earnings rally was what we saw in January or 2) if we're back to the days of the getting the earnings look for free and the stock responds 2-3 days later

 

Either way - I am somewhat shocked we didn't get a pop of 5-10% from market participants who haven't been following this as closely as we have. 

 

Were there any surprises in the Q4 earnings?  Seems like we knew all of that ahead of time:  TRS profit, Micron profit, October bond moves, interest rates move for the quarter, lack of big Cats, etc

[StubbleJumper]

4 minutes ago, TwoCitiesCapital said:

Going to be honest - the share price reaction to an a amazing earnings report is a bit disappointing

 

Makes me wonder if 1) the market had it "right" and the earnings rally was what we saw in January or 2) if we're back to the days of the getting the earnings look for free and the stock responds 2-3 days later

 

Either way - I am somewhat shocked we didn't get a pop of 5-10% from market participants who haven't been following this as closely as we have. 

 

There are probably some people who took the opportunity to add last week and are lightening up before the long weekend.  I increased my position by 30% about five minutes after I read that amateurish report.  I went from being unwisely concentrated in FFH to being bat-shit-crazy concentrated in FFH.  I really should have been trimming the position in 2024, but have instead increased it significantly.  At some point, reason will have to prevail and I'll put in a sell order for the shares that I bought last week.

 

High conviction is high conviction, but stupid is stupid.

 

 

SJ

[MMM20]

12 minutes ago, TwoCitiesCapital said:

Going to be honest - the share price reaction to an a amazing earnings report is a bit disappointing

 

I've felt this way every quarter for the past few years. And yet.

 

Give it a couple months. Or at least a couple days!

 

 

Edited February 16, 2024 by MMM20

[TwoCitiesCapital]

21 minutes ago, gfp said:

 

Were there any surprises in the Q4 earnings?  Seems like we knew all of that ahead of time:  TRS profit, Micron profit, October bond moves, interest rates move for the quarter, lack of big Cats, etc

 

Fairfax has demonstrated time and time again that its share price is NOT part of an efficient market. 

 

As mentioned in my post, there used to be stellar earnings reports that the stock wouldn't react to and then 2-days later the stock would pop 4-6% for seemingly no reason. I actually started a strategy of adding to my positions after great earnings and then selling into those pops that worked reasonably well for 12-18 months. 

 

So while there is nothing that surprised us, given things like the headlines characterizing these earnings as a "miss" or as lower than last-years (without adjusting for the $1.2B gain from a subsidiary sale), or the share price tanking after the MW report, it's clear that the market doesn't follow this anywhere near as closely as we do as is regularly missing the story here. Which is why I'm surprised the earnings report didn't spell it out for those folks with $1.7B in Q4. 

 

14 minutes ago, StubbleJumper said:

 

There are probably some people who took the opportunity to add last week and are lightening up before the long weekend.  I increased my position by 30% about five minutes after I read that amateurish report.  I went from being unwisely concentrated in FFH to being bat-shit-crazy concentrated in FFH.  I really should have been trimming the position in 2024, but have instead increased it significantly.  At some point, reason will have to prevail and I'll put in a sell order for the shares that I bought last week.

 

High conviction is high conviction, but stupid is stupid.

 

 

SJ

 

That could be. That was exactly my plan into a 5-10% earnings pop ABOVE the pre-MW report prices. 

 

Broke my own rule on position concentration to allow adds in the wake of the MW report. Gains since then have been satisfactory, but was definitely expecting more "oomph" from it. Now I have to decide how long I'm going to allow myself to break my rule for. 

 

10 minutes ago, MMM20 said:

 

I've felt this way every quarter for the past few years. And yet.

 

Give it a couple months. Or at least a couple days!

 

 

 

Yea - we'll see. Hoping it's the return of the 2-3 day lag in share response to earnings. 

[Crip1]

32 minutes ago, TwoCitiesCapital said:

Going to be honest - the share price reaction to an a amazing earnings report is a bit disappointing

 

Makes me wonder if 1) the market had it "right" and the earnings rally was what we saw in January or 2) if we're back to the days of the getting the earnings look for free and the stock responds 2-3 days later

 

Either way - I am somewhat shocked we didn't get a pop of 5-10% from market participants who haven't been following this as closely as we have. 

 

I think two things are muting the reaction today.

 

First, though I don't have data to support this, historically the reaction to positive earnings news has taken 2-3 trading days to materialize. No idea why this is, but it's happened on more than a few occasions.

 

Second, the earnings report came in reasonably close to expectations with positive surprises (4 year run rate) offset by negative surprises (slowing premium growth), so much of this was already baked into the price. 

 

All above in my humble opinion.

 

-Crip

[Thrifty3000]

The headline was negative. The bots are doing their thing.

[gfp]

Does anybody remember the date that the Annual Report / shareholders letter was released last year?  I couldn't find a press release.  I suppose I could check my 'downloads' folder..

[Hoodlum]

The Globe provided some of the detailed quotes from today's conference call.

 

https://www.theglobeandmail.com/business/article-fairfax-rebuts-short-seller-defends-investment-valuations/

[StubbleJumper]

19 minutes ago, gfp said:

Does anybody remember the date that the Annual Report / shareholders letter was released last year?  I couldn't find a press release.  I suppose I could check my 'downloads' folder..

 

I have the annual letter in my Downloads directory because I like to read it multiple times during a year.  When I open the .pdf file, the meta-data says it was created on 15 March 2023, so presumably it would have been released within a day or two of that.

 

 

SJ

[gfp]

Thanks, I couldn't find it in my own downloads.  Didn't think to download it again and check the pdf meta data. 

[SharperDingaan]

2 hours ago, Crip1 said:

 

I think two things are muting the reaction today.

 

First, though I don't have data to support this, historically the reaction to positive earnings news has taken 2-3 trading days to materialize. No idea why this is, but it's happened on more than a few occasions.

 

Second, the earnings report came in reasonably close to expectations with positive surprises (4 year run rate) offset by negative surprises (slowing premium growth), so much of this was already baked into the price. 

 

All above in my humble opinion.

 

-Crip

 

Keep in mind that no buying doesn't mean no money waiting on the side-lines to come in. If MW round 2 doesn't happen soon it's not going to, so give them some time  ; it's a small community, and the laughter is echoing. Their last success was a long time ago, and if this is the best that they can do now ...... well, the walls are closing. 

 

Somebody lend them a few shares, to buy back cheaper!

 

SD!

 

 

 

Edited February 16, 2024 by SharperDingaan

[Hoodlum]

With the Digit IPO likely happening this year and now the splitting of Quess into 3 public trading companies, MW’s report is becoming thinner than it already was. 
 

https://m.economictimes.com/tech/technology/quess-corp-to-split-into-three-independent-listed-companies/articleshow/107763011.cms

 

The company’s largest shareholder, Fairfax Financial Holdings chairman Prem Watsa said each of the new entities would be a market-leading player with the ability to leverage opportunities that come its way through its renewed focus. 

“From the time we initially invested in Quess Corp Ltd., in 2013, the company has become one of the largest domestic employers in India and has the potential to develop as a significant business services player on a global scale.”

“We are confident that this strategic initiative will benefit all shareholders and ensure that the management team gets the support to achieve the set-out goals from the demerger,” Watsa said.

[Viking]

46 minutes ago, Hoodlum said:

With the Digit IPO likely happening this year and now the splitting of Quess into 3 public trading companies, MW’s report is becoming thinner than it already was. 
 

https://m.economictimes.com/tech/technology/quess-corp-to-split-into-three-independent-listed-companies/articleshow/107763011.cms

 

The company’s largest shareholder, Fairfax Financial Holdings chairman Prem Watsa said each of the new entities would be a market-leading player with the ability to leverage opportunities that come its way through its renewed focus. 

“From the time we initially invested in Quess Corp Ltd., in 2013, the company has become one of the largest domestic employers in India and has the potential to develop as a significant business services player on a global scale.”

“We are confident that this strategic initiative will benefit all shareholders and ensure that the management team gets the support to achieve the set-out goals from the demerger,” Watsa said.

At first blush, splitting Quess into three companies makes so much sense. Quess is a massive company with very different verticals. This resembles the IIFL split into 3 separate companies (finance, wealth and securities) in 2019 and that has worked out exceptionally well for shareholders. Let’s hope the same happens with Quess. Another tailwind for Fairfax’s equity portfolio, although the timing looks like in will likely be 1H 2025. That’s OK - we are not in a hurry.

 

This is another example of Fairfax providing great support for a holding. It is all about getting them in the best position possible to be successful moving forward. Fairfax has been doing a great job of doing this with their equity holdings over the past 6 or so years. And as a result, the quality of the group of equity holdings as a whole continues to improve. 

Edited February 16, 2024 by Viking

[Hoodlum]

Here is the full press release from Quess.

 

https://www.quesscorp.com/wp-content/uploads/2022/11/demerger-release-16022024.pdf

 

 

[Viking]

Q4 Earnings Review. Summary: great quarter and an amazing year.  

 

Here are the answers to the questions I asked on Wed:

 

1.) What is the size of the bond gains in Q4?

 

$997 million - yes, a very big number

 

2.) What is the size of IFRS 17 impact?

 

TBD - but not a concern.

 

3.) What is the average duration of the fixed income portfolio?

 

Over the year, spent $11.7 billion on US treasuries with maturities between 5 and 7 years. We will need to wait until the AR is released to get specifics.

 

4.) What is interest and dividend income for Q4?

 

Interest and dividends were $536.6 million, up from $512.7 in Q3. Pace of increase is slowing. GIG will be a tailwind in 2024.

 

If Eurobank initiates a dividend this would provide a big tailwind to dividend income. I think Eurobank reports results in early March.

 

5a.) What is premium growth in Q4?

 

Net premiums written down 5.5% in Q4 and up 3.5% for 2023.

 

The shortfall in Q4 was driven by Odyssey exiting a quote share contract (low margin). And Brit continuing to exit its property cat exposure. Both moves were made to improve future profitability.

 

People are looking for tangible evidence of actions Fairfax has been taking to improve the quality of their P/C insurance business… we'll, I think they have it.

 

5b.) What is the Q4 and YE combined ratio?

 

The CR was 89.9% in Q4 and 93.2% for 2023.

 

Do we see reserve releases? Yes. Favourable of $309.6 million for 2023 versus $196.2 million for 2022.

 

6.) What is share of profit of associates?

 

Q4 came in at $127.7, lighter than I expected. We will see details in the AR.

 

Full year was $1.02 billion.

 

7a.) What are investment gains from equities?

 

Equity gains were $370.2 million in Q4 and $1.2 billion for 2023.

 

7b.) For equities, what is the excess of market value to carrying value?

 

For all of Fairfax’s non-insurance holdings the excess of FV over CV was $1 billion, up from $310 million in 2022.

 

What is status of RiverStone Barbados AVLN’s? Details to come in the AR.

 

8.) How does the closing/consolidation of Gulf Insurance Group impact financials?

 

Do we see an investment gain booked of around $290 million? Yes 

 

9.) What is the size of adverse development for runoff?

 

Prior year reserve development for run-off came in at $259.4 million.

 

10.) What is year-end share count?

 

Common shares effectively outstanding at Dec 31, 2023 = 23.0 million

 

11.) What is year-end book value per share?

 

BV at Dec 31, 2023 = $939.65/share versus $762.28 at Dec 31, 2022.

[gfp]

5 minutes ago, Viking said:

If Eurobank initiates a dividend this would provide a big tailwind to dividend income. I think Eurobank reports results in early March.

 

While a dividend is a dividend, I don't think it will have much of an effect here since Eurobank is receiving equity method accounting.  We are already recognizing our full share of Eurobank's profits as profit so a Eurobank dividend won't likely show up in the official 'interest and dividend income.' 

[Maverick47]

9 minutes ago, Viking said:

10.) What is year-end share count?

 

Common shares effectively outstanding at Dec 31, 2023 = 23.0 million

Thanks for the update @Viking!  I feel pretty good about the results relative to expectations.  Regarding share count, I’ve got to believe this is a critical denominator for per share estimates.  Last time I checked Brett Horn’s Morningstar report, he was projecting roughly 25.5 million shares outstanding for 2023 through 2025.  That may be part of the reason he projects earnings per share close to $100 for the next few years.  
 

Nice to hear Prem indicate that he’s comfortable with the run rate on interest income for the next four years…

[Parsad]

5 hours ago, gfp said:

I assume Mr. Block will be long gone by the AGM.  I think Fairfax does have a more "accurate" or "up-to-date" book value than, say, Berkshire and should trade at a lower price to book ratio than Berkshire all else being equal (they are not equal, Fairfax has higher growth, more float leverage and generally lower quality earnings vs. BRK).  Berkshire's carrying values rarely get re-marked higher by transactions.  Marmon and Pilot are two recent examples of required Fairfax-style write-ups but we will probably never see BNSF or GEICO marked up on Berkshire's balance sheet.

 

Again that comes back to Fairfax's reporting requirements as a Canadian reporter and Berkshire's reporting requirements as a U.S. reporter.  Under IFRS, you are required to mark assets at fair value or comparable value.  Berkshire hasn't adjusted See's Candies cost since acquiring it I believe. 

 

It's why Buffett says that Berkshire's intrinsic value is far higher than book value.  That analogy cannot be used with Markel or Fairfax, where there isn't massive amounts of undervalued assets on the book.  While both companies should trade higher than book...1-2 times, Berkshire probably should be trading between 2-3 times book.  Cheers!

[Parsad]

5 hours ago, TwoCitiesCapital said:

Going to be honest - the share price reaction to an a amazing earnings report is a bit disappointing

 

Makes me wonder if 1) the market had it "right" and the earnings rally was what we saw in January or 2) if we're back to the days of the getting the earnings look for free and the stock responds 2-3 days later

 

Either way - I am somewhat shocked we didn't get a pop of 5-10% from market participants who haven't been following this as closely as we have. 

 

I think markets had a pretty good idea book value would be significantly higher, thus the stock had a nice run up.  Now it will probably continue to rise moderately as we approach each quarterly report, because the markets know that there will be consistent growth in book value for several years.  The bulk of the gains from where the stock hit bottom have happened.  Now it will be based on annual growth of book and any market speculation where the multiple of book or earnings might be marked higher.  Cheers!

[ValueMaven]

5 minutes ago, Parsad said:

 

Again that comes back to Fairfax's reporting requirements as a Canadian reporter and Berkshire's reporting requirements as a U.S. reporter.  Under IFRS, you are required to mark assets at fair value or comparable value.  Berkshire hasn't adjusted See's Candies cost since acquiring it I believe. 

 

It's why Buffett says that Berkshire's intrinsic value is far higher than book value.  That analogy cannot be used with Markel or Fairfax, where there isn't massive amounts of undervalued assets on the book.  While both companies should trade higher than book...1-2 times, Berkshire probably should be trading between 2-3 times book.  Cheers!

 

BNSF is on BRK's books at purchase price of ~$45B, despite having a FV of at least $150B ... so yea, there is that

[Munger_Disciple]

5 hours ago, gfp said:

I assume Mr. Block will be long gone by the AGM.  I think Fairfax does have a more "accurate" or "up-to-date" book value than, say, Berkshire and should trade at a lower price to book ratio than Berkshire all else being equal (they are not equal, Fairfax has higher growth, more float leverage and generally lower quality earnings vs. BRK).  Berkshire's carrying values rarely get re-marked higher by transactions.  Marmon and Pilot are two recent examples of required Fairfax-style write-ups but we will probably never see BNSF or GEICO marked up on Berkshire's balance sheet.

 

+1

Book value & its growth are good proxies for the intrinsic value of FFH for this reason I think assuming FFH's marks are conservative. GAAP accounting is the main reason BRK's intrinsic value far exceeds book and likely one of the main reasons Buffett abandoned the book value metric (that and significant share repurchases above book but below intrinsic value). 

Edited February 16, 2024 by Munger_Disciple

[MMM20]

49 minutes ago, Parsad said:

 

Again that comes back to Fairfax's reporting requirements as a Canadian reporter and Berkshire's reporting requirements as a U.S. reporter.  Under IFRS, you are required to mark assets at fair value or comparable value.  Berkshire hasn't adjusted See's Candies cost since acquiring it I believe. 

 

It's why Buffett says that Berkshire's intrinsic value is far higher than book value.  That analogy cannot be used with Markel or Fairfax, where there isn't massive amounts of undervalued assets on the book.  While both companies should trade higher than book...1-2 times, Berkshire probably should be trading between 2-3 times book.  Cheers!

How does the massive float at FFH factor into your calculation of intrinsic value these days?

 

Edited February 16, 2024 by MMM20

[steph]

57 minutes ago, Parsad said:

 

Again that comes back to Fairfax's reporting requirements as a Canadian reporter and Berkshire's reporting requirements as a U.S. reporter.  Under IFRS, you are required to mark assets at fair value or comparable value.  Berkshire hasn't adjusted See's Candies cost since acquiring it I believe. 

 

It's why Buffett says that Berkshire's intrinsic value is far higher than book value.  That analogy cannot be used with Markel or Fairfax, where there isn't massive amounts of undervalued assets on the book.  While both companies should trade higher than book...1-2 times, Berkshire probably should be trading between 2-3 times book.  Cheers!

 

[steph]

I used to agree with this, but much less nowadays.  Reason being that with BRK you also pay 1,4 times the value of Apple and other huge listed portfolio + huge cash pile.  You don’t pay the real value of the unlisted companies, but you pay a big premium on cash and listed portfolio that has become a very big part of BRK. 

[glider3834]

4 hours ago, Haryana said:

You are adding dividends as if they were paid at the end.
They were paid annually at the beginning of each year.

 

When you account for that, the CAGR comes at ~16.5%.
Please see if you agree, time value of dividend.

 

I assumed no reinvestment of divs (eg assume you pop dividend money in a no interest account each year and leave it there and add it to your share gains over period) - which appears thats how Fairfax got their CAGR calc of 11.7% for 2017-2022 but feel free to double check.

 

You do see total return measures that include reinvested divs, so I think assuming no reinvestment like Fairfax do is more conservative.

Edited February 16, 2024 by glider3834