Fairfax 2025

[Viking]

The ‘non-insurance consolidated companies’ income stream looks like it might be breaking out for Fairfax. It delivered $150.1 million in Q4. This does not include a full quarter of results from Peak Achievements. If the annual run rate for this income stream is now $600 million… well that would be amazing. That is not in analysts estimates right now. Hopefully it is discussed on the conference call tomorrow.

 

A stock is worth the future cash flows it generates discounted back to today… Do we care that a new material income stream has materialized right before our eyes (kind of like what Share of Profit of Associates did 3 years ago…)?

 

Who is included in ‘non-insurance consolidated companies’ bucket?

• Sleep Country, Peak Achievements, Recipe, Grivalia Hospitality, Meadow Foods, Sporting Life, And more…

Of Fairfax’s 5 income streams, this one is the smallest. But it looks like it is about to get much bigger:

• Underwriting income
• Interest and dividend income
• Share of profit of associates
• investment gains
• Non-insurance consolidated companies 

Edited Friday at 01:09 AM by Viking

[SafetyinNumbers]

32 minutes ago, gfp said:

So from the numbers in my post above, they purchased and cancelled 334,047 shares in Q4.  The effective share count went down by 322,137 shares.  No big deal, employee purchases, minor net issuance, etc.

 

Where is the other $240 million worth?

 

I'm saying it must have always been counted as treasury stock in the "effective shares outstanding" language.  Which means so are all the other TRS shares right?

How are you calculating $240m? It’s fair to assume the other 12k went into treasury stock for employees. That’s about $17m.

[Munger_Disciple]

35 minutes ago, gfp said:

So from the numbers in my post above, they purchased and cancelled 334,047 shares in Q4.  The effective share count went down by 322,137 shares.  No big deal, employee purchases, minor net issuance, etc.

 

Where is the other $240 million worth?

 

I'm saying it must have always been counted as treasury stock in the "effective shares outstanding" language.  Which means so are all the other TRS shares right?

 

It's confusing to say the least. Why don't they make a very important item like  the share count calculation clearer? Seems like a good question for the conf. call tomorrow. 

Edited Thursday at 11:53 PM by Munger_Disciple

[gfp]

1 minute ago, SafetyinNumbers said:

How are you calculating $240m? It’s fair to assume the other 12k went into treasury stock for employees. That’s about $17m.

 

"the company purchased 207,974 of its subordinate voting shares for treasury at a cost of $240.4 million"

 

Straight from their release.  So where is this 208k shares in the change in "effective share count" ?

 

 

Edited Thursday at 11:54 PM by gfp

[SafetyinNumbers]

2 minutes ago, gfp said:

 

"the company purchased 207,974 of its subordinate voting shares for treasury at a cost of $240.4 million"

 

Straight from their release.  So where is this 208k shares in the change in "effective share count" ?

 

 

Ah I see what you’re saying. Sorry it took me so long. The offset is most likely employee shares that vested.

[Munger_Disciple]

2 minutes ago, SafetyinNumbers said:

Ah I see what you’re saying. Sorry it took me so long. The offset is most likely employee shares that vested.

 

That's a lot of employee shares in just one quarter. 

[Parsad]

The flurry of activity right after the quarterly report reminds me of how we used to tear apart every quarterly/annual report from Berkshire 25 years ago on the Motley Fool BRK Board.  Which led me to creating the predecessor for this current message board.

 

Now, you guys are analyzing FFH in a similar fashion...if history does rhyme...maybe this is 25 years of glorious compounding and investments to come from Fairfax!  One can only hope!

 

Cheers!

[Parsad]

Just now, Parsad said:

The flurry of activity right after the quarterly report reminds me of how we used to tear apart every quarterly/annual report from Berkshire 25 years ago on the Motley Fool BRK Board.  Which led me to creating the predecessor for this current message board.

 

Now, you guys are analyzing FFH in a similar fashion...if history does rhyme...maybe this is 25 years of glorious compounding and investments to come from Fairfax!  One can only hope!

 

Cheers!

 

Incidentally, my two cents...looks like interest income from the portfolio is now at a $2.5B per year run rate! 

 

If any of you are on the call tomorrow, ask what the average duration is of that portfolio and how many years going forward can we expect that type of annual interest income? 

 

I'm guessing the average has extended closer to 5 years.  If that is the case, then Fairfax's next 5 years are essentially guaranteed in terms of book value growth and intrinsic value will track that growth.

 

Cheers!

[Hoodlum]

23 minutes ago, Viking said:

The ‘non-insurance consolidated companies’ income stream looks like it might be breaking out. It delivered $150.1 million in Q4. This does not include a full quarter of results from Peak Achievements. If the annual run rate for this income stream is now $600 million… well that would be amazing. That is not in analysts estimates right now. Hopefully it is discussed on the conference call tomorrow.

 

A stock is worth the future cash flows it generates discounted back to today… Do we care that a new material income stream has materialized right before our eyes (kind of like what Share of Profit of Associates did 3 years ago…)?

 

Who is included in ‘non-insurance consolidated companies’ bucket?

• Sleep Country
• Peak Achievements
• Recipe
• Grivalia Hospitality
• Meadow Foods
• Sporting Life
• And more…

Of Fairfax’s 5 income streams, this one is the smallest. But it looks like it is about to get much bigger:

• Underwriting income
• Interest and dividend income
• Share of profit of associates
• investment gains
• Non-insurance consolidated companies 
   

 

@Viking Would Blizzard Vacatia also fall under ‘non-insurance consolidated companies’.  If so, I would presume Fairfax's investment of $835M for 50% equity would get Blizzard Vacatia close to the top 5 in this group and would add to this groups earning in 2025.

Edited Friday at 12:08 AM by Hoodlum

[mananainvesting]

At December 31, 2024 there were 21,668,466 (December 31, 2023 – 23,003,248) common shares effectively outstanding.

 

During 2024 the company purchased 207,974 of its subordinate voting shares for treasury at a cost of $240.4 million and 1,346,953 subordinate voting shares for cancellation at a cost $1,588.4 million, or $1,179.24 per share.

 

Total Change (decrease) in shares YoY: 23,003,248 - 21,668,466 = 1,334,782

 

Total shares cancelled + purchased for treasury in 2024 = 207,974 + 1,346,953 = 1,554,927

 

Difference = 220,145 shares

 

 

Good questions, where did this go??

[SafetyinNumbers]

6 minutes ago, mananainvesting said:

At December 31, 2024 there were 21,668,466 (December 31, 2023 – 23,003,248) common shares effectively outstanding.

 

During 2024 the company purchased 207,974 of its subordinate voting shares for treasury at a cost of $240.4 million and 1,346,953 subordinate voting shares for cancellation at a cost $1,588.4 million, or $1,179.24 per share.

 

Total Change (decrease) in shares YoY: 23,003,248 - 21,668,466 = 1,334,782

 

Total shares cancelled + purchased for treasury in 2024 = 207,974 + 1,346,953 = 1,554,927

 

Difference = 220,145 shares

 

 

Good questions, where did this go??

Wouldn’t that be a reasonable number of shares vesting for employees in a year?

Edited Friday at 12:15 AM by SafetyinNumbers

[SafetyinNumbers]

12 minutes ago, Hoodlum said:

 

@Viking Would Blizzard Vacatia also fall under ‘non-insurance consolidated companies’.  If so, I would presume Fairfax's investment of $835M for 50% equity would get Blizzard Vacatia close to the top 5 in this group and would add to this groups earning in 2025.

It seems like the equity value is pretty small versus the other financing 

[mananainvesting]

1 minute ago, SafetyinNumbers said:

Wouldn’t that be a reasonable number of shares vesting for employees in a year?

Hmmm, seems a bit excessive (almost a 30% increase) compared to prior years. 

[Viking]

1 hour ago, gfp said:

So from the numbers in my post above, they purchased and cancelled 334,047 shares in Q4.  The effective share count went down by 322,137 shares.  No big deal, employee purchases, minor net issuance, etc.

 

Where is the other $240 million worth?

 

I'm saying it must have always been counted as treasury stock in the "effective shares outstanding" language.  Which means so are all the other TRS shares right?

 

@gfp, does this table help answer your question? I have not updated it to include the information from Q4. The table is in my excel workbook (shares tab, near the bottom) that I have been sharing.

 

 

 

Edited Friday at 12:25 AM by Viking

[SafetyinNumbers]

3 minutes ago, mananainvesting said:

Hmmm, seems a bit excessive (almost a 30% increase) compared to prior years. 

We’ll find out in 3 weeks I guess.

[Viking]

In terms of underwriting results, it appears Fairfax is moving up the quality rankings for P/C insurance companies. In a high catastrophe year, as a company it delivered a combined Q4 CR of 89.5% and another record underwriting profit of $1.8 billion. That is outstanding. And its two largest operating companies, Allied and Odyssey delivered Q4 CR's of 83.4% and 85.3%. Bottom line, the quality of Fairfax P/C insurance businesses are way under-rated.

 

Importantly, looking to the future, they look very well positioned. Andy Barnard (and team) should get a gold star on their report card from Prem.

 

 

Edited Friday at 12:45 AM by Viking

[SafetyinNumbers]

1 minute ago, Viking said:

In terms of underwriting results, it appears Fairfax is moving up the quality rankings for P/C insurance companies. In a high catastrophe year, as a company it delivered a combined Q4 CR of 89.5% and another record underwriting profit of $1.8 billion. That is outstanding. And its two largest operating companies, Allied and Odyssey delivered Q4 CR's of 83.4% and 85.3%. Bottom line, the quality of Fairfax P/C insurance businesses are way under-rated.

 

 

I think we may see these reserve releases for years to come following the hard market for the last 4+ years.

[Hoodlum]

4 minutes ago, SafetyinNumbers said:

I think we may see these reserve releases for years to come following the hard market for the last 4+ years.

 

Yes, this is becoming a new tailwind that is not being accounted for in analyst estimates.  

[SafetyinNumbers]

6 minutes ago, Hoodlum said:

 

Yes, this is becoming a new tailwind that is not being accounted for in analyst estimates.  

It’s hard to have faith that analysts will do what makes sense but their core earnings estimates should be climbing. Fairfax should have target prices of at least 15x on core earnings but it will take analysts a while to get there.  

[gfp]

43 minutes ago, Viking said:

 

@gfp, does this table help answer your question? I have not updated it to include the information from Q4. The table is in my excel workbook (shares tab, near the bottom) that I have been sharing.

 

 

 

 

Thanks Viking that is helpful.  Doesn't answer my question but it helps to see it all laid out that way over multiple years.  I'm just trying to understand what the impact of closing out the TRS on FFH shares will be if the company decides to put up the cash to buy the shares from the swap counterparty (thus turning them into actual share repurchases).  This quarter it seemed like they did this, partially, for $240m dollars worth.  But it had no effect on effective shares outstanding even though $240 million bucks went out the door.  Which lead to my question.

Edited Friday at 01:02 AM by gfp

[Viking]

10 minutes ago, gfp said:

 

Thanks Viking that is helpful.  Doesn't answer my question but it helps to see it all laid out that way over multiple years.  I'm just trying to understand what the impact of closing out the TRS on FFH shares will be if the company decides to put up the cash to buy the shares from the swap counterparty (thus turning them into actual share repurchases).  This quarter it seemed like they did this, partially, for $240m dollars worth.  But it had no effect on effective shares outstanding even though $240 million bucks went out the door.  Which lead to my question.

 

@gfp , Yes, after I posted my table I realized it likely was not actually answering anything. you raise an important question. We are all trying to understand what the end game is for the FFH-TRS position - and what the impacts are for Fairfax.

[Munger_Disciple]

13 minutes ago, gfp said:

 

Thanks Viking that is helpful.  Doesn't answer my question but it helps to see it all laid out that way over multiple years.  I'm just trying to understand what the impact of closing out the TRS on FFH shares will be if the company decides to put up the cash to buy the shares from the swap counterparty (thus turning them into actual share repurchases).  This quarter it seemed like they did this, partially, for $240m dollars worth.  But it had no effect on effective shares outstanding even though $240 million bucks went out the door.  Which lead to my question.

 

The only thing that makes sense is the employee stock grants. Quite a hefty tab; I wish they paid them in cash instead following the Berkshire system. We will find out for sure when the annual report comes out. Somebody should ask this question on the conf call. 

Edited Friday at 01:15 AM by Munger_Disciple

[SafetyinNumbers]

1 minute ago, Munger_Disciple said:

 

The only thing that makes sense is the employee stock grants. Quite a hefty tab; I wish they paid them in cash instead following the Berkshire system. We will find out for sure when the annual report comes out. 

It would be vesting of grants, not new ones, to be clear. My understanding is that company does a match of a portion of the employee’s salary. Viking’s chart shows almost 2m shares in treasury for employees, so it seems reasonable ~10% of them would vest annually plus they basically bought the same amount back to replenish them.

[nwoodman]

5 minutes ago, Munger_Disciple said:

 

The only thing that makes sense is the employee stock grants. Quite a hefty tab; I wish they paid them in cash instead following the Berkshire system. We will find out for sure when the annual report comes out. Somebody should ask this question on the conf call. 

While I usually deplore SBC, in the case of Fairfax it was one of the aspects of the comps package that really got me across the line a couple of years back when I was on the fence about purchasing more.  It got me thinking about the longevity of their employees and sharing in the upside as well as downside.  Perhaps I needed a little convincing back then that it wasn’t some black box scam run by charlatans, the kind of company Muddy Water SHOULD have targeted.

[SafetyinNumbers]

2 minutes ago, nwoodman said:

While I usually deplore SBC, in the case of Fairfax it was one of the aspects of the comps package that really got me across the line a couple of years back when I was on the fence about purchasing more.  It got me thinking about the longevity of their employees and sharing in the upside as well as downside.  Perhaps I needed a little convincing back then that it wasn’t some black box scam run by charlatans, the kind of company Muddy Water SHOULD have targeted.

By buying the shares with cash as they are awarded, it’s really just additional salary. The purest form of stock based comp.