Fairfax 2025

[gfp]

Vacatia investment sounds like a high yield structure - only $25m in equity, 50/50 with the operating partner ($50m total).

 

The rest of FFH's investment is 13.5%, 9.5% and SOFR+4%

Edited Friday at 01:53 PM by gfp

[RockNation]

A question on the call from BMO inquired about the TRS and “why they were still held at 1.3 times book value?” 

Response: “We view the TRS on our shares as an investment and we are confident it will continue to perform well as, if you compare our multiples with peer companies we feel it is prudent to hold this investment as we intend to be able to grow book value in a reasonable manner” 

The conversation was something along those lines. So, no answer to them about any sort of plan and definitely does not seem to be in a rush to wind it down. This is strong confidence on the current valuation and forward looking affairs for sure..

Comments on LA fires were that were comfortable with their exposures, no intention to walk away and they were going to see how pricing unfolded. 

None of the analysts asked questions about bond duration.. I missed the first part of the call perhaps it had already been discussed? . 

[Txvestor]

An interesting observation was that there were $731M of unrealized bond investment losses this year compared to the 491M of gains last year. That's a swing of about $1.2B(to the downside this year). Granted some of that is offset by IFRS accounting, but still a rather enormous fictitious earnings line item as they mostly hold these bonds to maturity. 
Add to that the $422M of forex losses which are also taken but hardly relevant to their businesses and you're talking an ~$1.6B headwind to EPS. I guess offsetting that to an extent is the one off $112M digit IPO dividend. 
So when reported EOY earnings went from ~$175 to ~$160, excluding these fluctuations the number could have been well over $200. 
 

interesting too that they said their TRS are still good value and are held as an investment and made no mention of unwinding them. But I do think they will over a 2yr time frame. 

Edited Friday at 02:43 PM by Txvestor

[Txvestor]

13 minutes ago, RockNation said:

A question on the call from BMO inquired about the TRS and “why they were still held at 1.3 times book value?” 

Response: “We view the TRS on our shares as an investment and we are confident it will continue to perform well as, if you compare our multiples with peer companies we feel it is prudent to hold this investment as we intend to be able to grow book value in a reasonable manner” 

The conversation was something along those lines. So, no answer to them about any sort of plan and definitely does not seem to be in a rush to wind it down. This is strong confidence on the current valuation and forward looking affairs for sure..

Comments on LA fires were that were comfortable with their exposures, no intention to walk away and they were going to see how pricing unfolded. 

None of the analysts asked questions about bond duration.. I missed the first part of the call perhaps it had already been discussed? . 

They generated 5.1% on a 47B bond portfolio. And have a current 3.3yr average duration. They mentioned that that duration will move forward some as yields stay high.
So in short what I understood is that higher for longer is incrementally better for Fairfax. There's even a little more room for overall yield to climb. And even falling rates won't drop yields but quite gradually for them. 

Edited Friday at 02:41 PM by Txvestor

[Txvestor]

41 minutes ago, gfp said:

Vacatia investment sounds like a high yield structure - only $25m in equity, 50/50 with the operating partner ($50m total).

 

The rest of FFH's investment is 13.5%, 9.5% and SOFR+4%

Yes an interesting one for sure. Seems like a High risk high reward opportunity with an experienced operator with huge skin in the game. Its a business built around selling vacant room capacity in high density tourist locations like Vegas and Orlando. 
I hope all that debt is non recourse as $25M is virtually meaningless to Fairfax but $850M is more significant. Thats some serious high yield debt.  

[gfp]

2 minutes ago, Txvestor said:

Yes an interesting one for sure. Seems like a High risk high reward opportunity with an experienced operator with huge skin in the game. Its a business built around selling vacant room capacity in high density tourist locations like Vegas and Orlando. 
I hope all that debt is non recourse as $25M is virtually meaningless to Fairfax but $850M is more significant. Thats some serious high yield debt.  

 

Sounded to me like most of it was first mortgage secured by the actual apartments

[Junior R]

new 52 week high 2,075.81

[dartmonkey]

13 minutes ago, Junior R said:

new 52 week high 2,075.81

The price broke through CAD$2000 for the first time in Dec 2024 and touched a high price of $2071.49 on Dec 6, before dropping back below $2000 and finishing 2024 at exactly $2000 (or $1978, adjusted for the dividend paid in January.) 

 

The highest price today (which was $2075.81 when youu posted, and $2089.26 now, but the day is young) would be an all-time high as far as I can tell, in absolute terms, but even more so if you adjust for the CAD$21.50 dividend.

[MMM20]

2 hours ago, gfp said:

$500-750m pre-tax loss estimate on wildfires.  some or possibly all covered under "cat margin" in the quarter

 

"primarily on reinsurance" Odyssey, Brit and Allied World

 

typically 1 - 1.5% of industry losses.  Industry losses cited at $35-45 Billion.  Estimating closer to 1.5% - "the high side" since it is a reinsurance event

 

Should this change how we think about the impact of The Big One in LA? Maybe we'd be looking at a ~$10B hit.

 

Otherwise I'm a happy shareholder. Maybe this is the year we finally rerate to peer multiples.

 

[SafetyinNumbers]

30 minutes ago, MMM20 said:

 

Should this change how we think about the impact of The Big One in LA? Maybe we'd be looking at a ~$10B hit.

 

Otherwise I'm a happy shareholder. Maybe this is the year we finally rerate to peer multiples.

 

I believe they have dollar limits as well so I don’t think they would take the full hit in that scenario. 

[bluedevil]

The prepared remarks from the current conference call team are really terrific. 
 

it used to be Prem would give some high level comments and then you would have the CFO give a blizzard of numbers that were already in the written reports.

 

the current team is informative, concise; clear; and nails the high points

[cwericb]

I guess the days are over when Fairfax would post great results and we would have two or three days to buy shares before the market would react. Took a long time for the market to clue in that Fairfax is the real deal.

[gfp]

Yeah they did a great job with the call.  Prem wasn't even "with us today" - lol.  I think he really intended to step back from the conference calls before that Muddy Waters report but got sucked back in for a couple after that short report.

[Hektor]

28 minutes ago, cwericb said:

I guess the days are over when Fairfax would post great results and we would have two or three days to buy shares before the market would react. Took a long time for the market to clue in that Fairfax is the real deal.

It's all @Viking's fault 

[Munger_Disciple]

5 hours ago, SafetyinNumbers said:

It’s not real dilution because they buy the shares in the open market. 

 

It is dilution of buybacks, some of which are going towards SBC. Any way you look at it, it is coming out of shareholders' pockets. It bothers me that SBC went up so much in the last 10 years. 

 

I was estimating $500mm from LA fire damage but the estimate they gave seems a bit higher ($500-$750mm range). Hopefully they can jackup the reinsurance rates going forward. 

 

Other than these two items, things seem to going well. 

[TwoCitiesCapital]

47 minutes ago, cwericb said:

I guess the days are over when Fairfax would post great results and we would have two or three days to buy shares before the market would react. Took a long time for the market to clue in that Fairfax is the real deal.

 

I miss the days of the free peak, buying the stock, and then watching it bounce 

 

Markets are not always entirely efficient even when they're given all of the information. 

[SafetyinNumbers]

22 minutes ago, Munger_Disciple said:

 

It is dilution of buybacks, some of which are going towards SBC. Any way you look at it, it is coming out of shareholders' pockets. It bothers me that SBC went up so much in the last 10 years. 

 

 

I don’t see it that way, if they are paying an employee 100k and offer 100% match for up to 10% of their salary, for example, and use the extra 10k to buy stock instead of paying them $110k, how is it diluting buybacks? You are basically saying they should pay employees less as employees salaries come out of shareholder pockets.

[Munger_Disciple]

4 minutes ago, SafetyinNumbers said:

I don’t see it that way, if they are paying an employee 100k and offer 100% match for up to 10% of their salary, for example, and use the extra 10k to buy stock instead of paying them $110k, how is it diluting buybacks? You are basically saying they should pay employees less as employees salaries come out of shareholder pockets.

 

Did the employee comp go up 20X in 10 years? That's a lot!

[MMM20]

I’m reminded of a message from Michael Burry (then 26 years old) to sea_biscuit, on siliconinvestor.com dated 4/18/1997 at 12:25:00 AM:

“Precisely why I wish to evaluate companies in the midst of proven buybacks. Small marginal companies have taken to using buyback announcements as a publicity stunt to support their stock. More often than not, the buybacks do not materialize. When they do, they end up not retiring the stock and placing it in the corporate treasury, which is of marginal use to shareholders. Everyone should be aware of this trick, as you point out.

Mike“

 

Is that the gist of your point @Munger_Disciple? That all buybacks are not created equal? And we should add that stock comp to SG&A and adjust the share count?

 

I’m not concerned b/c they’re not just giving away shares and that program is a probably big piece of how they’ve retained great people to produce these returns @SafetyinNumbers

 

Edited Friday at 06:17 PM by MMM20

[gfp]

19 minutes ago, Munger_Disciple said:

 

Did the employee comp go up 20X in 10 years? That's a lot!

 

The company is a lot bigger but also I would assume it reflects greater participation in the various employee stock ownership schemes.  Overall a good thing if employees are owning stock and Fairfax is using cash to buy the stock it uses for compensation.

[Munger_Disciple]

15 minutes ago, MMM20 said:

I’m reminded of a message from Michael Burry (then 26 years old) to sea_biscuit, on siliconinvestor.com dated 4/18/1997 at 12:25:00 AM:

“Precisely why I wish to evaluate companies in the midst of proven buybacks. Small marginal companies have taken to using buyback announcements as a publicity stunt to support their stock. More often than not, the buybacks do not materialize. When they do, they end up not retiring the stock and placing it in the corporate treasury, which is of marginal use to shareholders. Everyone should be aware of this trick, as you point out.

Mike“

 

Is that the gist of your point @Munger_Disciple? That all buybacks are not created equal? And we should add that stock comp to SG&A and adjust the share count?

 

Yes, it is part of employee comp and should be treated as such. None of the share buybacks that go into treasury will be beneficial to outside shareholders and should be treated as such when counting the diluted number of shares outstanding. To be fair, FFH does include the treasury shares in computing diluted earnings/share. Personally, I would also include the higher number of shares in calculating the book value per share (even if it's not industry practice). 

 

[Munger_Disciple]

22 minutes ago, gfp said:

 

The company is a lot bigger but also I would assume it reflects greater participation in the various employee stock ownership schemes.  Overall a good thing if employees are owning stock and Fairfax is using cash to buy the stock it uses for compensation.

 

Do we know how much the employee count went up in the last 10 years? If it is mostly due to the growth of the company & if it is truly implemented as @SafetyinNumbers says (just using a portion of employee comp to buy shares for them in the open market to encourage stock ownership by employees; I would like to see a reference though), I would have slightly less heartburn. 

Edited Friday at 06:38 PM by Munger_Disciple

[dartmonkey]

11 minutes ago, gfp said:

The company is a lot bigger but also I would assume it reflects greater participation in the various employee stock ownership schemes.  Overall a good thing if employees are owning stock and Fairfax is using cash to buy the stock it uses for compensation.

We tend to have a negative view of employee stock grants or stock option grants because some tech companies give them out like candy, cause a lot of dilution to their existing shareholders, and then don't want to account for them as an expense. Buffett has made fun of this in the past, for instance, and said: “Stock-based compensation is the most egregious example,” Buffett said. “The very name says it all: ‘compensation.’ If compensation isn’t an expense, what is it? And, if real and recurring expenses don’t belong in the calculation of earnings, where in the world do they belong?"

 

But a program that wants employees to purchase stock, and gives them part of their compensation to encourage them to do this, and repurchases those shares as they are granted, and accounts for all this appropriately by calling this a compensation expense which reduces earnings, is really doing something completely sensible and, probably, positive for the long-term culture of the company and retention of its employees. It would be good to review exactly how Fairfax is doing this, and it may not be exactly the same in each of the companies it owns (following the principle of allowing managers some discretion in how they do things), but from what I can tell, Fairfax seems to be doing this right.

[gfp]

25 minutes ago, Munger_Disciple said:

 

Do we know how much the employee count went up in the last 10 years? If it is mostly due to the growth of the company & if it is truly implemented as @SafetyinNumbers says (just using a portion of employee comp to buy shares for them in the open market to encourage stock ownership by employees; I would like to see a reference though), I would have slightly less heartburn. 

 

The employee count went up a ton over the last 10 years.  I don't know exactly how much, but I'm seeing 44k in 2019 and 51k in 2023.  ChatGPT says 26k in 2012 and 2014

 

From the 2023 report on the payroll deduction employee stock ownership plan:

 

"

If an employee earning $40,000 had participated fully in this program since its inception, he or she would have

accumulated 4,000 shares of Fairfax worth Cdn$4.9 million at the end of 2023. I am happy to say we have many

employees who have done exactly that!

"

Edited Friday at 07:01 PM by gfp

[Munger_Disciple]

23 minutes ago, gfp said:

 

The employee count went up a ton over the last 10 years.  I don't know exactly how much, but I'm seeing 44k in 2019 and 51k in 2023.

 

From the 2023 report on the payroll deduction employee stock ownership plan:

 

"

If an employee earning $40,000 had participated fully in this program since its inception, he or she would have

accumulated 4,000 shares of Fairfax worth Cdn$4.9 million at the end of 2023. I am happy to say we have many

employees who have done exactly that!

"

 

Thanks @gfp! I was trying to find the head count from 2014 AR but they don't seem to have an aggregate number, but they did disclose the employee numbers for the various groups under the corporate umbrella. I need to sum these up in a spreadsheet when I have sometime this weekend.