Fairfax 2024

[Thrifty3000]

7 minutes ago, gfp said:

I don’t think the Trump corporate tax rate cuts expire. Congress would have to do something 

 

7 minutes ago, gfp said:

I don’t think the Trump corporate tax rate cuts expire. Congress would have to do something 

Ok, but Kamala is calling for 28% corporate tax in her budget plan. So I’m curious what the risk adjustment to fair value should be. 

[Thrifty3000]

Here are the corporate related elements of her plan…

 

[Maverick47]

43 minutes ago, Thrifty3000 said:

Ok, but Kamala is calling for 28% corporate tax in her budget plan. So I’m curious what the risk adjustment to fair value should be. 

Personally I’m not too worried about corporate tax rate changes over the long term.  Insurance companies will set rates targeting their desired after tax returns on allocated capital.  So if tax rates on US based income increase, and if target after tax returns are unchanged, insurers’ pricing formulas will simply adjust to charge their customers rates that will be sufficient to generate those after tax returns.  
 

You are correct to be concerned about what would happen in the short term.  Since rates are set in advance, to the extent that premiums in force are set based on lower tax rates, they will generate lower than desired profits between the time when tax rates are changed and when the rates can be adjusted upwards.  This should affect all insurance companies in the taxing jurisdiction relatively equally as a one time upward or downward impact on after tax earnings, depending on whether corporate tax rates are increased or decreased.

 

 

[SafetyinNumbers]

Does anyone know why they have been provisioning at 26% this year vs 18% last year?

[Luke]

4 hours ago, Thrifty3000 said:

Here are the corporate related elements of her plan…

 

There will be a 4%?! buyback tax??

[petec]

On 9/21/2024 at 4:49 PM, SafetyinNumbers said:

I believe them when they say they are looking to buy quality on a dip

 

Have they actually said this?

[SafetyinNumbers]

43 minutes ago, petec said:

 

Have they actually said this?

That’s what I heard at the AGM. 

[gfp]

8 hours ago, Luke said:

There will be a 4%?! buyback tax??

 

Just remember that what someone running for president puts on their website has little connection to 1) the actual powers of the presidency and 2) what will happen if they are elected.  If Joe and Kamala wanted 28% corporate taxes and a 4% buyback tax why aren't they doing that now?  Because they can't.  POTUS doesn't get to make these types of decisions so it doesn't matter what you put out there.  If you have a view on the composition of each house of congress then maybe you can game out something that could actually pass that she would sign (if she is elected, still an open question).

 

Also, since this was a Fairfax specific question originally, remember that Fairfax is a Canadian company, with subsidiaries in multiple tax jurisdictions from Bermuda, Mauritius, the UK, and the United States (and many many others).  Fairfax's actual cash tax rate is complicated and different forms of income in different jurisdictions are taxed differently.  Fairfax Financial is not like Berkshire with a large deferred capital gain tax liability and a fairly pure USA tax jurisdiction. 

 

I still hope somebody asks on one of the conference calls if gains from the total return swaps Fairfax holds on their own shares are tax-free.  In the United States, transactions in an issuers own stock are not taxable but this is Canada and these are derivatives so I have no idea what the treatment is.  I guess I should just email them and ask.

 

Below is one quarter of FFH tax complications - and cash taxes paid will differ from this substantially

Edited September 25, 2024 by gfp

[Luke]

55 minutes ago, gfp said:

 

Just remember that what someone running for president puts on their website has little connection to 1) the actual powers of the presidency and 2) what will happen if they are elected.  If Joe and Kamala wanted 28% corporate taxes and a 4% buyback tax why aren't they doing that now?  Because they can't.  POTUS doesn't get to make these types of decisions so it doesn't matter what you put out there.  If you have a view on the composition of each house of congress then maybe you can game out something that could actually pass that she would sign (if she is elected, still an open question).

 

Also, since this was a Fairfax specific question originally, remember that Fairfax is a Canadian company, with subsidiaries in multiple tax jurisdictions from Bermuda, Mauritius, the UK, and the United States (and many many others).  Fairfax's actual cash tax rate is complicated and different forms of income in different jurisdictions are taxed differently.  Fairfax Financial is not like Berkshire with a large deferred capital gain tax liability and a fairly pure USA tax jurisdiction. 

 

I still hope somebody asks on one of the conference calls if gains from the total return swaps Fairfax holds on their own shares are tax-free.  In the United States, transactions in an issuers own stock are not taxable but this is Canada and these are derivatives so I have no idea what the treatment is.  I guess I should just email them and ask.

 

Below is one quarter of FFH tax complications - and cash taxes paid will differ from this substantially

Thank you for your detailed answer! 

[A_Hamilton]

4 hours ago, gfp said:

 

Just remember that what someone running for president puts on their website has little connection to 1) the actual powers of the presidency and 2) what will happen if they are elected.  If Joe and Kamala wanted 28% corporate taxes and a 4% buyback tax why aren't they doing that now?  Because they can't.  POTUS doesn't get to make these types of decisions so it doesn't matter what you put out there.  If you have a view on the composition of each house of congress then maybe you can game out something that could actually pass that she would sign (if she is elected, still an open question).

 

Also, since this was a Fairfax specific question originally, remember that Fairfax is a Canadian company, with subsidiaries in multiple tax jurisdictions from Bermuda, Mauritius, the UK, and the United States (and many many others).  Fairfax's actual cash tax rate is complicated and different forms of income in different jurisdictions are taxed differently.  Fairfax Financial is not like Berkshire with a large deferred capital gain tax liability and a fairly pure USA tax jurisdiction. 

 

I still hope somebody asks on one of the conference calls if gains from the total return swaps Fairfax holds on their own shares are tax-free.  In the United States, transactions in an issuers own stock are not taxable but this is Canada and these are derivatives so I have no idea what the treatment is.  I guess I should just email them and ask.

 

Below is one quarter of FFH tax complications - and cash taxes paid will differ from this substantially

The TRS are at the Parent level. There have historically been a lot of net operating losses at the parent from interest expense in Canada that doesn't have an offsetting gain each year. You'd have to speak to the company, but my understanding a few years ago was that this was shielding a decent portion of the gain (though with the swap up so much now it is likely less).

[Hektor]

https://www.fairfax.ca/press-releases/intention-to-make-a-normal-course-issuer-bid-for-subordinate-voting-shares-and-preferred-shares-09-26-2024/?utm_source=press-release&utm_medium=email&utm_term=Thu+Sep+26+2024&utm_campaign=Intention+to+Make+a+Normal+Course+Issuer+Bid+for+Subordinate+Voting+Shares+and+Preferred+Shares

[adventurer]

18 hours ago, Hektor said:

https://www.fairfax.ca/press-releases/intention-to-make-a-normal-course-issuer-bid-for-subordinate-voting-shares-and-preferred-shares-09-26-2024/?utm_source=press-release&utm_medium=email&utm_term=Thu+Sep+26+2024&utm_campaign=Intention+to+Make+a+Normal+Course+Issuer+Bid+for+Subordinate+Voting+Shares+and+Preferred+Shares

Thank you.

Can somebody please explain the concept of buybacks with respect to the time horizon? Are buybacks always announced the way Fairfax`s has been announced (above)? And is it not always desirable to own shares during these periods? At least if around 10% or above of the outstanding shares are to be acquired?

 

And does somebody have experience as to how probable it is that Fairfax will be able to acquire the full amount of shares? Did they manage to acquire the target amount in the past? 

[villainx]

@adventurer  Buyback announcements are normal.  % or $ permitted to be repurchase will be different.  And it's discretionary.  Can be opportunistic, to offset dilution, or a way to return money to shareholders.   At same time, it can be suboptimal if valuations are high.

[UK]

https://www.prnewswire.com/news-releases/fairfax-to-acquire-controlling-ownership-of-peak-achievement-athletics-302261917.html

[Hoodlum]

59 minutes ago, UK said:

https://www.prnewswire.com/news-releases/fairfax-to-acquire-controlling-ownership-of-peak-achievement-athletics-302261917.html

 

So it looks like they could not find a buyer at the price they wanted.  We will find out in Feb what this acquisition was valued at.

[SafetyinNumbers]

1 hour ago, Hoodlum said:

 

So it looks like they could not find a buyer at the price they wanted.  We will find out in Feb what this acquisition was valued at.

I don’t know if that’s the right read. It seems like Sagard was a seller but management was not so that explains why FFH wants to stay in the deal. Sagard likely wanted to run the process to make sure they were getting a fair price. Presumably it was a price that FFH can still earn a 15% return which is what PE would be looking for as well. 

[dartmonkey]

On 9/6/2024 at 10:24 AM, dartmonkey said:

I love it when Fairfax opportunistically accepts a nosebleed offer, like the pet insurance bid by JAB Holdings a couple of years ago or this Stelco bid. When I heard they were shopping Bauer/Maverik/Peak, which seems to have been a modestly successful investment (about 10% CAGR I think), I wondered why they don't just hold onto it, hoping someone develops an irresistible craving for a hockey/lacrosse equipment company. What's the hurry?

 

So it looks like they could not find a buyer at the price they wanted.  We will find out in Feb what this acquisition was valued at.

 

...I don’t know if that’s the right read. It seems like Sagard was a seller but management was not so that explains why FFH wants to stay in the deal. Sagard likely wanted to run the process to make sure they were getting a fair price. Presumably it was a price that FFH can still earn a 15% return which is what PE would be looking for as well. 

 

Looks like I got what I hoped for, Fairfax hanging on, and it seems that it was Sagard that wanted to get out. I much prefer having Fairfax the buyer of an asset they know well, from a motivated seller. If at some point someone desperately wants to own the #1 hockey brand, maybe Fairfax would sell, but in the meantime, they have a nice asset at what may be a nice price.

[SafetyinNumbers]

27 minutes ago, dartmonkey said:

So it looks like they could not find a buyer at the price they wanted.  We will find out in Feb what this acquisition was valued at.

 

...I don’t know if that’s the right read. It seems like Sagard was a seller but management was not so that explains why FFH wants to stay in the deal. Sagard likely wanted to run the process to make sure they were getting a fair price. Presumably it was a price that FFH can still earn a 15% return which is what PE would be looking for as well. 

 

Looks like I got what I hoped for, Fairfax hanging on, and it seems that it was Sagard that wanted to get out. I much prefer having Fairfax the buyer of an asset they know well, from a motivated seller. If at some point someone desperately wants to own the #1 hockey brand, maybe Fairfax would sell, but in the meantime, they have a nice asset at what may be a nice price.

I think they like to sell with management so incentives are aligned and they don’t get left holding the bag 

[Masterofnone]

For what it is worth, my niece and nephew who both have been upper level lacrosse players tell me that Cascade Lacrosse and Maverik Lacrosse are first tier brands. No close second in helmets.

[giulio]

 

[MMM20]

Can Bauer be Fairfax’s Sees Candy? A wide moat but niche regional brand that prints money without any great internal reinvestment prospects. Too small to really matter to the parent returns, but a symbol of what they’re looking for / why they’re special, and a signal to Canadian business owners that Fairfax is the best long term home when they decide to sell. Thoughts?

 

Edited October 1, 2024 by MMM20

[hardcorevalue]

It seems a much smaller TAM and less pricing power than See’s is famous for. 

[villainx]

1 hour ago, hardcorevalue said:

It seems a much smaller TAM and less pricing power than See’s is famous for. 

cause of global warming?

[MMM20]

1 hour ago, hardcorevalue said:

It seems a much smaller TAM and less pricing power than See’s is famous for. 

 

I need to learn more about Bauer, but I'd assumed they had solid pricing power. What self-respecting Canadian or Minnesotan wants to be seen with Temu skates? Only half joking. Is there a legit competitor?

[Gamecock-YT]

CCM for one. Warrior and True maybe lesser known brands but lots of people favor them over Bauer or CCM. Then you get down to Sherwood and Winwell.