Q2 Earnings Discussion

[UK]

Found nothing to dislike in the conference call:)

 

Just to highlight again: "And -- but what I've noticed here is the uptick in your share buybacks over 613,000 shares in the quarter. That's nearly triple what you purchased in the "rst quarter and then almost 6x, which you purchased on a quarter -- on the fourth quarter of last year. "

 

So share repurchasing pace seems accelerating and running at a ~10 percent annualised rate in the Q2.

 

 

[gfp]

40 minutes ago, UK said:

Found nothing to dislike in the conference call:)

 

Just to highlight again: "And -- but what I've noticed here is the uptick in your share buybacks over 613,000 shares in the quarter. That's nearly triple what you purchased in the "rst quarter and then almost 6x, which you purchased on a quarter -- on the fourth quarter of last year. "

 

So share repurchasing pace seems accelerating and running at a ~10 percent annualised rate in the Q2.

 

 

 

This quarter was helped by a large block purchase of Prem's shares.  I wouldn't expect this to be the new open market run-rate for repurchases.  It's not a super liquid stock.  I'm happy they are being more aggressive now that the dividends are flowing down to the holdco.

 

I didn't hear them mention plans for buying in minority interests in subsidiaries on the call - did anyone catch anything on that or did it go unmentioned?

[UK]

13 minutes ago, gfp said:

 

This quarter was helped by a large block purchase of Prem's shares.  I wouldn't expect this to be the new open market run-rate for repurchases.  It's not a super liquid stock.  I'm happy they are being more aggressive now that the dividends are flowing down to the holdco.

 

I didn't hear them mention plans for buying in minority interests in subsidiaries on the call - did anyone catch anything on that or did it go unmentioned?

 

Good point/agree re open market, probably will have to find some other way. It seems nothing was told re minorities. Also it seems the call again ended because of no more questions. Being on COBF one could almost forget this reality of still unusually low interest from a market for a 25 B company:)

 

 

[dartmonkey]

14 hours ago, nwoodman said:

Conference call notes.  Transcript attached

 

Financial Performance and Outlook

Peter Clarke highlighted sustainable operating income: "For the first time in our 38-year history, we can say to you we expect, of course, no guarantees sustainable operating income of $4 billion."

 

I

 

Not quite true: Watsa said this in the 2023 annual report (my emphasis):

 

We can see sustaining our adjusted operating income for the next four years at $4.0 billion (no guarantees), consisting of: underwriting profit of $1.25 billion or more; interest and dividend income of at least $2.0 billion; and income from associates of $750 million, or about $125 per share after taxes, interest expense, corporate overhead and other costs. These figures are all, of course, before fluctuations in realized and unrealized gains in stocks and bonds!

 

https://www.fairfax.ca/wp-content/uploads/FFH_Fairfax-Financial-Shareholders-Letter-2023.pdf

[dartmonkey]

11 hours ago, UK said:

 

Good point/agree re open market, probably will have to find some other way. It seems nothing was told re minorities.

 

 

 

This Q2 report: During the first six months of 2024 the company purchased for cancellation 854,031 subordinate voting shares (2023 – 179,744) principally under its normal course issuer bids at a cost of $938.1 (2023 – $114.9), of which $726.5 (2023 – $70.4) was charged to retained earnings. Included were 275,000 subordinate voting shares purchased from Prem Watsa, the company's Chairman and CEO, for $304.3 pursuant to an exemption from the issuer bid requirements contained in applicable Canadian securities laws.

 

Q1 report, to subtract out the first 3 months: During the first quarter of 2024 the number of common shares effectively outstanding decreased by 172,075, primarily as a result of purchases of 240,734 subordinate voting shares for cancellation, partially offset by net issuances of 68,659 subordinate voting shares from treasury (for use in the company’s sharebased payment awards). At March 31, 2024 there were 22,831,173 common shares effectively outstanding.

 

So in Q2 alone, they purchased 854,031 - 172,075 = 681,956 shares, 275,000 of which were the Watsa bloc, so 406,956 shares, still a substantial acceleration from 172,075, and this is despite generally higher prices in the second quarter, . That would make for an annual rate of 1,627,824 shares, or 7.1% of the current number of implied shares outstanding (22.92 million).

[Thrifty3000]

Yes. And when the share count hits 20 million, that $125 per share of “current” earnings power will increase to $143 per share (and that’s without any increase to operating earnings or investment gains). It’s simply the power of share buybacks.

 

With the share price around $1,000, this opportunity to buy dollars for fifty cents should work out pretty well.

[UK]

27 minutes ago, dartmonkey said:

 

This Q2 report: During the first six months of 2024 the company purchased for cancellation 854,031 subordinate voting shares (2023 – 179,744) principally under its normal course issuer bids at a cost of $938.1 (2023 – $114.9), of which $726.5 (2023 – $70.4) was charged to retained earnings. Included were 275,000 subordinate voting shares purchased from Prem Watsa, the company's Chairman and CEO, for $304.3 pursuant to an exemption from the issuer bid requirements contained in applicable Canadian securities laws.

 

Q1 report, to subtract out the first 3 months: During the first quarter of 2024 the number of common shares effectively outstanding decreased by 172,075, primarily as a result of purchases of 240,734 subordinate voting shares for cancellation, partially offset by net issuances of 68,659 subordinate voting shares from treasury (for use in the company’s sharebased payment awards). At March 31, 2024 there were 22,831,173 common shares effectively outstanding.

 

So in Q2 alone, they purchased 854,031 - 172,075 = 681,956 shares, 275,000 of which were the Watsa bloc, so 406,956 shares, still a substantial acceleration from 172,075, and this is despite generally higher prices in the second quarter, . That would make for an annual rate of 1,627,824 shares, or 7.1% of the current number of implied shares outstanding (22.92 million).

 

Thanks!

[kodiak]

The next four years of Fairfax and why the shares still seem quite cheap today.

 

The company is expected to make $4.0 billion pre-tax for the next 4 years from existing operations and the current balance. This is $140 per share in after tax earnings, with very little projected from the equity investments. That is upside to the entire 4 year projection.

 

2024 - Current book value as of the end of the 2nd quarter is $980. Assuming we earn $35 per quarter after tax, plus at extra $13 from the sale of Stelco, we would end 2024 with $1,063 in year end book value. Plus at least an extra $50 dollars from the consolidated companies that doesn’t get included into book value. This calculates to a $1,113 year end 2024 book value.

 

2025 - The company earns $4.0 billion plus an extra $320 million after tax ($4.0 billion from 2024 which earns a 10% return and 20% tax rate divided by 23 million shares). Total after tax earnings are $140 plus $14 or $154 per share. Year end book value is $1,267, assuming reinvestment of $15 dividend.

 

2026 - The company now earns $4.0 billion, plus $400 million from 2024 retained earnings, plus $400 million from 2025 retained earnings. Total after-tax earnings are $167. This keeps assuming we earn only 10% returns on equity. Year end book value is now $1,434.

 

2027 - The company now earns $3.2 billion because interest rates have fallen from 5% to 3.5%. $400 million from retained 2024 earnings, $400 million from 2025 earnings and $400 million from 2026 earnings. Total after tax earnings are $153 per share. Since bond yields have fallen, we are now earning only 3.5% on our $40 billion so we “lost” $21 dollar per share in earnings. But we buyback $2.5 billion in our minority stakes in the insurance companies and now generate an extra $500 million pre-tax in earnings from that consolidation. That buyback generates $400 million after tax or $17 of extra earnings.

 

Plus, we generate $4.4 billion in earnings in 2027 and use only $2.5 billion to buy back the insurance subs. Therefore we still have $1.7 billion in retained earnings and that generates $6 per share in after tax income moving forward. So in the year we lose 1.5% of our bond yield, it is possible that our earnings still go up $9 dollars per share to $176 and our year end book value is $1,604.

 

If Fairfax shares trade for 140% of book value, the stock would trade for $2,245 per share. That scenario assumes only a 10% return on equity on retained earnings, a drop of 1.5% in the earnings from the income portfolio, with no other strategic moves from the company. Also, very small returns from the equity portfolio. This doubling in 48 months simply doesn’t require much to happen. This assumes no share buybacks. Given that we are buying shares at around 7 times earnings, we are actually earnings a 15% return on those purchases. The company has so many ways to improve on this basic pro-forma.

 

This increase over time in retained earnings is what the analysts are missing. In 2027, our earnings per share should be in the $176 range and that assumes a drop in interest rates. I think the company will far exceed this basis projection. 

[Viking]

48 minutes ago, kodiak said:

The next four years of Fairfax and why the shares still seem quite cheap today.

 

The company is expected to make $4.0 billion pre-tax for the next 4 years from existing operations and the current balance. This is $140 per share in after tax earnings, with very little projected from the equity investments. That is upside to the entire 4 year projection.

 

2024 - Current book value as of the end of the 2nd quarter is $980. Assuming we earn $35 per quarter after tax, plus at extra $13 from the sale of Stelco, we would end 2024 with $1,063 in year end book value. Plus at least an extra $50 dollars from the consolidated companies that doesn’t get included into book value. This calculates to a $1,113 year end 2024 book value.

 

2025 - The company earns $4.0 billion plus an extra $320 million after tax ($4.0 billion from 2024 which earns a 10% return and 20% tax rate divided by 23 million shares). Total after tax earnings are $140 plus $14 or $154 per share. Year end book value is $1,267, assuming reinvestment of $15 dividend.

 

2026 - The company now earns $4.0 billion, plus $400 million from 2024 retained earnings, plus $400 million from 2025 retained earnings. Total after-tax earnings are $167. This keeps assuming we earn only 10% returns on equity. Year end book value is now $1,434.

 

2027 - The company now earns $3.2 billion because interest rates have fallen from 5% to 3.5%. $400 million from retained 2024 earnings, $400 million from 2025 earnings and $400 million from 2026 earnings. Total after tax earnings are $153 per share. Since bond yields have fallen, we are now earning only 3.5% on our $40 billion so we “lost” $21 dollar per share in earnings. But we buyback $2.5 billion in our minority stakes in the insurance companies and now generate an extra $500 million pre-tax in earnings from that consolidation. That buyback generates $400 million after tax or $17 of extra earnings.

 

Plus, we generate $4.4 billion in earnings in 2027 and use only $2.5 billion to buy back the insurance subs. Therefore we still have $1.7 billion in retained earnings and that generates $6 per share in after tax income moving forward. So in the year we lose 1.5% of our bond yield, it is possible that our earnings still go up $9 dollars per share to $176 and our year end book value is $1,604.

 

If Fairfax shares trade for 140% of book value, the stock would trade for $2,245 per share. That scenario assumes only a 10% return on equity on retained earnings, a drop of 1.5% in the earnings from the income portfolio, with no other strategic moves from the company. Also, very small returns from the equity portfolio. This doubling in 48 months simply doesn’t require much to happen. This assumes no share buybacks. Given that we are buying shares at around 7 times earnings, we are actually earnings a 15% return on those purchases. The company has so many ways to improve on this basic pro-forma.

 

This increase over time in retained earnings is what the analysts are missing. In 2027, our earnings per share should be in the $176 range and that assumes a drop in interest rates. I think the company will far exceed this basis projection. 

 

Great summary. Buffett says the most important thing in valuing a company is certainty. As you point out, we have that with Fairfax's free cash flow over the next 3 to 4 years. And it is a BIG and growing number. 

 

What do investors think? When it comes to Fairfax, they don't care about the next 3 or 4 years. Or the earnings. Or that fact Fairfax is allocating capital exceptionally well.

 

Instead, they say... 'This is Fairfax!' And because it is Fairfax, they create new mental roadblocks - things that could go wrong. The new 'worry?' 'What will earnings be in 2027 or 2028?' 'With interest rates coming down over the past week, earnings at Fairfax are going to get killed in 3 or 4 years...' Really?

 

I love it. It just means Mr Market is going to get Fairfax completely wrong - again. This will allow Fairfax to continue to buy back a significant number of shares at a low valuation. And that is a beautiful thing for long term shareholders.

 

Long term shareholders already own 20% more of Fairfax (based on the stock bought back over the past 6.5 years). It looks to me like Fairfax is putting its foot down on the buyback accelerator - buybacks might continue at a very high level for the next couple of years.

 

My guess is Mr Market can't wait to unload their Fairfax shares (that 'it's never a bad idea to take profits' thing). And this will allow Fairfax to continue to take out a meaningful quantity of shares at a low valuation. It really is a crazy good set up.   

Edited August 3 by Viking

[Haryana]

@Viking curious in the context of your promoting the post projecting 2027 end share price of $2,245 that you voted No on the following poll - 

",,Fairfax book value or share price will touch US $ 2000 before 2027 end." 

[TB]

1 hour ago, Viking said:

 

Great summary. Buffett says the most important thing in valuing a company is certainty. As you point out, we have that with Fairfax's free cash flow over the next 3 to 4 years. And it is a BIG and growing number. 

 

What do investors think? When it comes to Fairfax, they don't care about the next 3 or 4 years. Or the earnings. Or that fact Fairfax is allocating capital exceptionally well.

 

Instead, they say... 'This is Fairfax!' And because it is Fairfax, they create new mental roadblocks - things that could go wrong. The new 'worry?' 'What will earnings be in 2027 or 2028?' 'With interest rates coming down over the past week, earnings at Fairfax are going to get killed in 3 or 4 years...' Really?

 

I love it. It just means Mr Market is going to get Fairfax completely wrong - again. This will allow Fairfax to continue to buy back a significant number of shares at a low valuation. And that is a beautiful thing for long term shareholders.

 

Long term shareholders already own 20% more of Fairfax (based on the stock bought back over the past 6.5 years). It looks to me like Fairfax is putting its foot down on the buyback accelerator - buybacks might continue at a very high level for the next couple of years.

 

My guess is Mr Market can't wait to unload their Fairfax shares (that 'it's never a bad idea to take profits' thing). And this will allow Fairfax to continue to take out a meaningful quantity of shares at a low valuation. It really is a crazy good set up.   

Threats to this thesis playing out:

(a) Dilution by stock options - buybacks may be able to neuter the dilutions

(b) Weaker stonk markets in India and the US. 

[Thrifty3000]

4 hours ago, kodiak said:

The next four years of Fairfax and why the shares still seem quite cheap today.

 

The company is expected to make $4.0 billion pre-tax for the next 4 years from existing operations and the current balance. This is $140 per share in after tax earnings, with very little projected from the equity investments. That is upside to the entire 4 year projection.

 

2024 - Current book value as of the end of the 2nd quarter is $980. Assuming we earn $35 per quarter after tax, plus at extra $13 from the sale of Stelco, we would end 2024 with $1,063 in year end book value. Plus at least an extra $50 dollars from the consolidated companies that doesn’t get included into book value. This calculates to a $1,113 year end 2024 book value.

 

2025 - The company earns $4.0 billion plus an extra $320 million after tax ($4.0 billion from 2024 which earns a 10% return and 20% tax rate divided by 23 million shares). Total after tax earnings are $140 plus $14 or $154 per share. Year end book value is $1,267, assuming reinvestment of $15 dividend.

 

2026 - The company now earns $4.0 billion, plus $400 million from 2024 retained earnings, plus $400 million from 2025 retained earnings. Total after-tax earnings are $167. This keeps assuming we earn only 10% returns on equity. Year end book value is now $1,434.

 

2027 - The company now earns $3.2 billion because interest rates have fallen from 5% to 3.5%. $400 million from retained 2024 earnings, $400 million from 2025 earnings and $400 million from 2026 earnings. Total after tax earnings are $153 per share. Since bond yields have fallen, we are now earning only 3.5% on our $40 billion so we “lost” $21 dollar per share in earnings. But we buyback $2.5 billion in our minority stakes in the insurance companies and now generate an extra $500 million pre-tax in earnings from that consolidation. That buyback generates $400 million after tax or $17 of extra earnings.

 

Plus, we generate $4.4 billion in earnings in 2027 and use only $2.5 billion to buy back the insurance subs. Therefore we still have $1.7 billion in retained earnings and that generates $6 per share in after tax income moving forward. So in the year we lose 1.5% of our bond yield, it is possible that our earnings still go up $9 dollars per share to $176 and our year end book value is $1,604.

 

If Fairfax shares trade for 140% of book value, the stock would trade for $2,245 per share. That scenario assumes only a 10% return on equity on retained earnings, a drop of 1.5% in the earnings from the income portfolio, with no other strategic moves from the company. Also, very small returns from the equity portfolio. This doubling in 48 months simply doesn’t require much to happen. This assumes no share buybacks. Given that we are buying shares at around 7 times earnings, we are actually earnings a 15% return on those purchases. The company has so many ways to improve on this basic pro-forma.

 

This increase over time in retained earnings is what the analysts are missing. In 2027, our earnings per share should be in the $176 range and that assumes a drop in interest rates. I think the company will far exceed this basis projection. 

 

If investors assume the portfolio earnings yield and the combined ratio will regress back closer to what FFH experienced from 2010 to 2015, then they'll be plugging in something like a 4% portfolio yield and a 97 combined ratio into their DCF models (I think the portfolio actually only yielded 3% during that time).

 

If I plug those assumptions - a 4% portfolio yield and a 97 CR - into my DCF model it spits out a present value that's actually pretty close to the current stock price.

 

Of course, I think the portfolio will do better than 4% and I think a 97 CR is probably a bit too conservative, so my best estimate of fair value lands closer to $1,800 per share.

 

 

Edited August 4 by Thrifty3000

[Viking]

6 hours ago, TB said:

Threats to this thesis playing out:

(a) Dilution by stock options - buybacks may be able to neuter the dilutions

(b) Weakerf stonk markets in India and the US. 

@TB When you say ‘Threats to the thesis playing out’ what is the time-frame you are using for the following:

 

b) Weaker stonk markets in India and the US. 

—————

Anything can happen over a one or even two way period. That is only a ‘threat’ if you are a short term trader.

—————

Fairfax has made their best investments when the shit was hitting the fan and Mr Market was losing their mind. Long term Fairfax shareholders should be praying for volatility. And, unlike the past, Fairfax now has record free cash flow raining down (and the insurance subs are generating excess capital) - this should enhance their ability to exploit volatility. 

Edited August 4 by Viking

[Viking]

1 hour ago, Thrifty3000 said:

 

If investors assume the portfolio earnings yield and the combined ratio will regress back closer to what FFH experienced from 2010 to 2015, then they'll be plugging in something like a 4% portfolio yield and a 97 combined ratio into their DCF models (I think the portfolio actually only yielded 3% during that time).

 

If I plug those assumptions - a 4% portfolio yield and a 97 CR - into my DCF model it spits out a present value that's actually pretty close to the current stock price.

 

Of course, I think the portfolio will do better than 4% and I think a 97 CR is probably a bit too conservative, so my best estimate of fair value lands closer to $1,800 per share.

@Thrifty3000 This post is not directed at you  

 

When it comes to Fairfax, I find investors:

1.) get anchored to what happened in the past (especially the recent past).

2.) get anchored with apparent self-truths that aren’t actually truths.

 

They then use those two faulty frameworks as important inputs into their valuation. And then they only apply it to Fairfax (not to peers).

—————

1.) Portfolio yield

- Fairfax is earning a little over 7% today. I keep hearing how that is crazy high and it has to come back down - by a lot. What is the logic? Because it is too high. 
 

2.) Combined Ratio

- Fairfax is delivering a combined ratio of 94 to 95%. This has to revert to something closer to 100. What is the logic? Because insurance markets are competitive - because it is too low. 
 

The truth is… it is really all about probability distributions.
- We can have a pretty good idea what might happen over the next 12 months.

- We can have a good idea what might happen over the next 24 months. 
- We can have an idea what might happen over the next 36 months. 
 

Looking out 4 years or more for ANY P/C insurance company? There are too many variables to really have strong view. 

Edited August 4 by Viking

[Hoodlum]

On 8/2/2024 at 9:14 PM, nwoodman said:

Conference call notes.  

 

Jen Allen: "So Jaeme, we did receive additional dividends in the quarter. On a YTD basis, we do provide disclosure in our MD&A under the liquidity section. So I'll refer you to that for the additional dividends that were received."

 

FRFHF Q2 24- Transcriptt.pdf 85.26 kB · 36 downloads

I looked at the MD&A to see how much this had increased, but could not find it.  Does anyone else see it. 

[Cigarbutt]

45 minutes ago, Hoodlum said:

I looked at the MD&A to see how much this had increased, but could not find it.  Does anyone else see it. 

You had to make it to page 60.

This is also where you can 'see' the net cash movement from the FFH common share TRS.

[nwoodman]

2 hours ago, Cigarbutt said:

You had to make it to page 60.

This is also where you can 'see' the net cash movement from the FFH common share TRS.

That’s the one.  
 

What I find incredible is that this is all developing as predicted.    Do we suddenly think that they might not  have a crack at corporate credits sometime in the not too distant future? Perhaps even some rationally priced equities.  All the while hoovering the one thing they know the best. .  

[Hoodlum]

6 hours ago, Cigarbutt said:

You had to make it to page 60.

This is also where you can 'see' the net cash movement from the FFH common share TRS.

Thanks

[sholland]

21 hours ago, kodiak said:

The next four years of Fairfax and why the shares still seem quite cheap today.

 

The company is expected to make $4.0 billion pre-tax for the next 4 years from existing operations and the current balance. This is $140 per share in after tax earnings, with very little projected from the equity investments. That is upside to the entire 4 year projection.

 

You say $140 per share, but Prem said $125 per share in the annual letter.  Has something changed?

[Thrifty3000]

19 hours ago, Viking said:

@Thrifty3000 This post is not directed at you  

 

When it comes to Fairfax, I find investors:

1.) get anchored to what happened in the past (especially the recent past).

2.) get anchored with apparent self-truths that aren’t actually truths.

 

They then use those two faulty frameworks as important inputs into their valuation. And then they only apply it to Fairfax (not to peers).

—————

1.) Portfolio yield

- Fairfax is earning a little over 7% today. I keep hearing how that is crazy high and it has to come back down - by a lot. What is the logic? Because it is too high. 
 

2.) Combined Ratio

- Fairfax is delivering a combined ratio of 94 to 95%. This has to revert to something closer to 100. What is the logic? Because insurance markets are competitive - because it is too low. 
 

The truth is… it is really all about probability distributions.
- We can have a pretty good idea what might happen over the next 12 months.

- We can have a good idea what might happen over the next 24 months. 
- We can have an idea what might happen over the next 36 months. 
 

Looking out 4 years or more for ANY P/C insurance company? There are too many variables to really have strong view. 

 

I totally agree. I think anchoring and pre-conceived notions about FFH are the major factors holding prospective investors back.

 

To shed some more light on how impactful the key variables are when estimating FFH's fair value, and to show how incredibly cheap FFH is currently, here is a summary of a DCF analysis showing Base Case, Worst Case, and Best Case scenarios - along with several of the most important assumptions driving each outcome.

 

You can quickly see that even the MOST PESSIMISTIC investors will likely earn a respectable return if they invest at the current stock price (even if FFH performs abysmally with insurance and investing AND if taxes are raised, etc). You can also easily see that FFH doesn't have to do anything heroic to generate a TON of wealth for shareholders over the next few years.

 

 

 

 

[SafetyinNumbers]

4 hours ago, sholland said:

You say $140 per share, but Prem said $125 per share in the annual letter.  Has something changed?

Have you done the math yourself on each of those categories? 

Tney seem to be quite achievable and most likely too low.
 

Run rate for underwriting profit is probably closer to $1.5-2b. I don’t think the guidance included Gulf.

 

Investment income run rate is closer to $2.5b.

 

Associates income run rate is closer to $0.9b.

All else being equal, that adds $25-30 in earnings. Of course investment gains are on top of that and we have high visibility on ~$80 of gains w/ FV over CV. In theory, if they were recognized over 4 years, that adds $20/yr of earnings but my guess is Fairfax is not a seller in many cases.
 

Of course, the returns of those investments will still be reflected in ROE so if they execute, carrying value, will keep increasing. That’s reflected in associates income guidance. Eurobank and Poseidon alone have a run rate contribution of > $30/sh. The absolute number is going up because these companies are good capital allocators and the per share contribution is going up because of ongoing buybacks.
 

 

 

 

[Thrifty3000]

44 minutes ago, SafetyinNumbers said:

Have you done the math yourself on each of those categories? 

Tney seem to be quite achievable and most likely too low.
 

Run rate for underwriting profit is probably closer to $1.5-2b. I don’t think the guidance included Gulf.

 

Investment income run rate is closer to $2.5b.

 

Associates income run rate is closer to $0.9b.

All else being equal, that adds $25-30 in earnings. Of course investment gains are on top of that and we have high visibility on ~$80 of gains w/ FV over CV. In theory, if they were recognized over 4 years, that adds $20/yr of earnings but my guess is Fairfax is not a seller in many cases.
 

Of course, the returns of those investments will still be reflected in ROE so if they execute, carrying value, will keep increasing. That’s reflected in associates income guidance. Eurobank and Poseidon alone have a run rate contribution of > $30/sh. The absolute number is going up because these companies are good capital allocators and the per share contribution is going up because of ongoing buybacks.
 

 

 

 

Also, to Prem's $125 you can add expected equity portfolio mark to market gains over time and make adjustments to factor in a shrinking share count.

 

$125 per share of earnings when there are 23 million shares becomes $137 per share of earnings after the share count is reduced to 21 million.

 

Edited August 4 by Thrifty3000

[SafetyinNumbers]

3 minutes ago, Thrifty3000 said:

Also, to Prem's $125 you can add expected equity portfolio mark to market gains over time and make adjustments to factor in a shrinking share count.

Plus the minority interests in the insurance companies that Kodiak highlighted. The $125 is incredibly conservative. Floor valuation should probably be at least 10x that earnings number given that most of the optionality is on the upside.

[dartmonkey]

5 hours ago, sholland said:

You say $140 per share, but Prem said $125 per share in the annual letter.  Has something changed?

$125/ share is the right number.

 

However, it’s possible that Watsa meant that current assets are expected to generate $125/share for 4 years. But that $500/share will be invested, too. If, for instance, it’s all invested in buybacks (it won’t be, but just to simplify the math), that would mean almost half (500/1077) of the shares would be retired, and  earnings/share would be almost double. In real life, most of that $500/share will be reinvested in something else with somewhat lower returns, but nonetheless, the actual earnings will be much, much higher than $125/share. 

 

In other words, Watsa is NOT saying that he expects there will be zero investment gains and zero returns on the $16b of operating earnings generated in the next 4 years. 

[adventurer]

Hello,

 

perhaps this has been discussed before but I did not find it. What is the consequence of these share buybacks? Say this goes on for another 5 years, wouldn`t the company be taken private at some point? I can see that the value of the shares will most probably rise but at some point the outstanding shares have been reduced to a point where it is possible to take Fairfax private and delist it. 

 

And thoughts on this?