Q2 Earnings Discussion

[Luke]

Excited! 20min left of waiting. 

 

https://www.fairfax.ca/news/

[gfp]

I would expect the results around 5pm eastern time, so a bit more waiting than that

[Dinar]

Numbers out, look incredible

[bearprowler6]

1 minute ago, Dinar said:

Numbers out, look incredible

that was helpful

 

[Junior R]

looks good

[Gregmal]

Anyone know if Mr Ozempic plans to join the call again to present his updated short thesis?

[Luke]

https://www.fairfax.ca/press-releases/fairfax-financial-holdings-limited-financial-results-for-the-second-quarter-08-01-2024/

[Mick92]

This has crept up to about a 33% position but I just don't see a reason to sell. They are crushing it, looks like another super quarter. Really stepping up the buybacks this year as the premium growth is stalling out.

[kodiak]

Premium growth was only 3% net of Gulf increase largely due to decrease in premiums from Odyssey. That is a very smart reduction. They are not extending themselves on premiums. Playing within their abilities and financial condition. That will help all shareholders over time. Solid quarter from the company. 

[nwoodman]

Great results and meaningful contributions from Eurobank and Poseidon.  

 

Eurobank Contribution: Q1: $79.3 million Q2: $126.1 million ($5.68 per share)

Poseidon Contribution: Q1: $34.8 million Q2: $66.5 million ($3.00 per share)

 

From the 2023 AR
“Poseidon is expected to make net earnings in excess of $400 million in 2024 and $500 million in 2025. We carry our 43% ownership in Poseidon at $1.7

billion - 10x 2024 expected earnings or 8x 2025 expected earnings.”

Edited August 1 by nwoodman

[Haryana]

Anyone see how Ki insurance bigly improves the combined ratio of Brit. 

 

[UK]

14 hours ago, Gregmal said:

Anyone know if Mr Ozempic plans to join the call again to present his updated short thesis?

 

He is unusually quiet since the last week:)

 

Probably busy by also deleting his tweets:)))

 

Edited August 2 by UK

[Thrifty3000]

If FFH is going to report this in the opening paragraph:

 

"Book value per basic share at June 30, 2024 was $979.63 compared to $939.65 at December 31, 2023 (an increase of 6.0% adjusted for the $15 per common share dividend paid in the first quarter of 2024)." 

 

then they should probably also include the amount spent on buybacks in that paragraph. Just like when Berkshire is buying back, book value stops telling investors the whole story.

[Viking]

What a great quarter of results. Fairfax delivered across all key metrics: Underwriting. Interest and dividend income. Share of profit of associates.
 

Excess of FV over CV is $1.5 billion, up from $1 billion at Dec 31. This is $500 million (pre-tax) in value creation that is NOT captured in earnings (and $1.5 billion pre-tax that is not captured in book value).

Estimated pre-tax gain of $390 million from Stelco sale should be coming in Q4.

 

Effective shares outstanding reduced by more than 800,000 in 6 months? WTF? Love it. I need to better understand the impact of buying back stock at a slight premium to book value.

 

Currency continues to be a headwind; about $200 million hit to book value in 1H 2024. That will likely reverse at some point (Trump election win?).

 

Tax rate in the quarter looks higher than trend… ???

 

Let’s see what we learn on the conference call in the morning.

Edited August 2 by Viking

[frommi]

The only interesting question is if they took the opportunity to extend the bond duration to 8+ years or did they miss it and you are looking at peak earnings here. (for the next several years)

Edited August 2 by frommi

[nwoodman]

6 minutes ago, frommi said:

The only interesting question is if they took the opportunity to extend the bond duration to 8+ years or did they miss it and you are looking at peak earnings here. (for the next several years)

I realise you are talking post 30 June but this was the composition of the bold portfolio Q1 to Q2.  Interpolated duration computed on the midpoint of each bond category.  Inaccurate but shows not much change quarter on quarter.

 

[Viking]

23 minutes ago, frommi said:

The only interesting question is if they took the opportunity to extend the bond duration to 8+ years or did they miss it and you are looking at peak earnings here. (for the next several years)

I think you are just messing around… 

[UK]

38 minutes ago, Viking said:

Effective shares outstanding reduced by more than 800,000 in 6 months? WTF? Love it.

 

+1

[Maverick47]

39 minutes ago, Viking said:

Effective shares outstanding reduced by more than 800,000 in 6 months? WTF? Love it. I need to better understand the impact of buying back stock at a slight premium to book value.

I was wondering about this too.  All else being equal, I would think that after the stock buybacks in such a case, the resulting book value per share would be slightly less than if the buybacks hadn’t been made.  But since we appear to believe that the fair market value per share ought to be in the range of 1.2 to 1.5 times book if Fairfax were valued similarly to competitors, then buybacks are still occurring below the intrinsic/expected fair value per share, and so they are still expected to be beneficial for existing shareholders.  
 

Berkshire used to have a set guideline that they would be allowed to buyback their shares when the price to book was 1.20 or less.  Then as book value became less applicable to their business, they removed even this restriction and now allow buybacks whenever the price is less than the intrinsic value per share as determined by management (Buffett).

 

 

[frommi]

57 minutes ago, Viking said:

I think you are just messing around… 

Yes a little bit, just ignore me  . 

[TwoCitiesCapital]

3 hours ago, frommi said:

The only interesting question is if they took the opportunity to extend the bond duration to 8+ years or did they miss it and you are looking at peak earnings here. (for the next several years)

 

 

 

I would love to see it for a tactical trade, but highly doubt it. I don't expect them to go much past the duration of their book of insurance TBH

 

Prem made an about face in 2016 from deflation positioning to inflation positioning and was willing to sit basically not earning anything on bonds for ~5 years. I don't think he's gonna suddenly view bonds as being attractive again. 

 

While they may tactically add/reduce duration to play rates or but a handful of long Treasury futures, I would be shocked if they were making big swings into long bonds when their view is time isn't the friend of the bonds. 

[gfp]

So the Compulsory convertible preferred Digit shares portion of the investment (separate form the 49% equity interest) will be marked to market, this quarter and going forward.

[gfp]

On Crowdstrike claims - not material.  Interesting that the patch was provided very quickly and these Business Interruption policies have waiting periods of 8-12 hours built into the policy language.  

[hasilp89]

2 hours ago, TwoCitiesCapital said:

but highly doubt it.

correct mentioned 2.7 years on the call.

 

sounds like buybacks will continue to be in focus given 1) premium growth slowing and insurance businesses requiring less capital + 2) holding company is well funded with cash and has no near term debt maturities.  

[gfp]

2 minutes ago, hasilp89 said:

correct mentioned 2.7 years on the call.

 

sounds like buybacks will continue to be in focus given 1) premium growth slowing and insurance businesses requiring less capital + 2) holding company is well funded with cash and has no near term debt maturities.  

 

I heard that figure as well but I think its a little bit misleading because it includes extra cash and the construction mortgages through KW are all accounted for as less than 1 year.  I think the effective duration of the bulk of the actual bond portfolio is longer than this.