Viking Posted July 12, 2025 Author Posted July 12, 2025 An Example: Grow P/C Insurance by Acquisition (2015-2017) – ‘Fortune Favours the Bold’ Yes, a discussion of leverage can get really theoretical. So, to help us on our quest (to learn more about the topic and Fairfax) let’s pivot and look at a real-world example. Growth by acquisition – P/C Insurance Expansion (2015-2017) From 2015 to 2017, Fairfax executed an aggressive acquisition strategy to build out its global P/C insurance footprint. At the time, PC insurance was in a soft market. As a result, top-line growth was stagnant and underwriting margins were under pressure. The investment management side of the business was also struggling - bond yields were very low. As a result, the stocks of P/C insurance companies were cheap. This was the perfect time to grow by acquisition. From 2015 to 2017, Fairfax made 11 different purchases of P/C insurance companies. The total cost was $7.6 billion. To provide context, at the end of 2014, common shareholders’ equity at Fairfax was $8.4 billion. Fairfax saw a big opportunity and they acted with conviction and backed up the truck. How did Fairfax pay for the acquisitions? This is where our story gets quite interesting. Below is a very rough estimate of how Fairfax came up with the $7.6 billion total cost. Fairfax supplied $1 billion in cash, or 13% of the total cost. Other people supplied about $6.6 billion of the total cost, or 87%. ‘Other people’s money’ came from three sources: Debt of $1 billion (held at the Fairfax level). Equity - Share issuance (Fairfax shares) of $3.3 billion. Equity - Minority partners (of the P/C insurance companies being acquired) of $2.3 billion. Fairfax used a significant amount of leverage when executing its aggressive grow by acquisition strategy. Let’s now review in a little more detail each of our leverage metrics: debt, equity and float. ———— Debt = $1 billion Fairfax needed to be careful with the amount of debt it used. It needed to keep the ratings agencies and insurance regulators happy. Holding company debt at Fairfax increased from $2.92 billion in 2014 to $3.96 billion in 2018, an increase of $1.04 billion over 4 years. What was the cost? Below are some of debt offerings Fairfax closed in 2015 and 2016: February 20, 2015 - $350 million of 4.95% senior notes due 2025. March 22, 2016 - C$400 million of 4.5% senior notes due 2023 December 16, 2016 - C$450 million of 4.7% senior notes due 2026. The increase in total debt was reasonable. And the cost was low (a blended rate of about 4.75%). ———— Equity At $5.6 billion, equity supplied the majority of the funds for Fairfax’s acquisitions. The funding from equity came from two sources: one public and one private. Equity – Share issuance (public markets) = $3.3 billion From 2015 to 2017, Fairfax issued a total of 7.25 million shares at an average price of $456/share for total proceeds of $3.3 billion. Using a familiar playbook Fairfax has a history of using equity to grow per share value for long term shareholders. Fairfax (generally) issued equity when it was trading at a premium to its intrinsic value. And it bought shares back when they were trading at a discount to its intrinsic value. But Fairfax had a problem in the 2015 to 2017 period. As we explained earlier, P/C insurance stocks in general were on sale. At the same time, Fairfax’s investment management business was underperforming. As a result, Fairfax’s shares were also on sale - trading only at a slight premium to book value. What was the cost? Fairfax’s book value at December 31, 2017 was $450/share. Fairfax issued a significant number of shares at 1 x BV. Long term Fairfax shareholders paid a high cost. This was not a good time to issue equity. So, Fairfax needed to limit the amount of its own equity that it used (the quantity of its own shares that it issued). What else could Fairfax do? What happened was classic Fairfax. They got creative. And came up with a novel solution. That is what we will explore next. ———— Equity – Minority partners (private markets) = $2.3 billion Minority partners supplied Fairfax with $2.3 billion. This was/is NOT a traditional source of capital for a P/C insurance company. Fairfax brought on minority partners for their three largest acquisitions: Brit: OMERS purchased 30%. Eurolife: OMERS purchased 40% Allied World: OMERS and CPPIB purchased 32.5% What was the cost to Fairfax? Allied World paid dividends to its minority partners in 2019, 2020 and 2021 of $126 million. This provided minority partners with an 8.0% return (using $1,560 million as the cost base). If accurate, this is a solid return for the minority partners (remember, this was a time when interest rates were very low). The cost to Fairfax was modest. By bringing on minority equity partners Fairfax was able to get access to much more capital. This allowed them to be very aggressive and maximize the size of their acquisitions. Importantly, Fairfax had complete control of all P/C insurance acquisitions - its partners were passive partners. One more thing: Call option feature When the equity deal is put in place with the minority partner it includes a call option feature. The call option gives Fairfax the right - but not the obligation - to buy out their minority partner at a specified price and by a specified date. Fairfax profits if the underlying asset increases in price. This is very important – for reasons we will explore in other posts. ———— What was the impact on float? From 2014 to 2017, total float at Fairfax increased from $15.1 to $22.7 billion, or 50%. This was a significant increase. The increase in float came primarily from the P/C insurance acquisitions. Total numbers are nice to look at. But what really matters to long term shareholders are the per share numbers: Given the high number of Fairfax shares that were issued, the per share increase in float was a much smaller 15%. And importantly, Fairfax shareholders did not own 100% of the $817/share of float. Minority partners owned big chunks of Eurolife, Brit and Allied World. So, on a per share basis, the amount of float that actually accrued to common shareholders was likely up only a small amount at December 31, 2017 (compared to December 31, 2014). Does this mean Fairfax made a big mistake with its aggressive P/C insurance acquisition campaign from 2015 to 2017? Great question. Let’s explore this next. ———— Big capital allocation decisions need to be evaluated over a 5 to 10-year time horizon. To evaluate Fairfax’s P/C insurance acquisition strategy from 2015 to 2017, let’s fast forward to December 31, 2024. How do things look 7 years later? Since 2018, Fairfax has been aggressively ‘deleveraging’ the equity part of its balance sheet. It has been buying back stock. And it has been taking out its minority partners. At the same time, Fairfax has been aggressively growing its P/C insurance business. Let’s review each of these in more detail. Equity ‘deleveraging’ part 1 – Share buybacks (effective): Before embarking on its P/C insurance expansion, shares outstanding at Fairfax was 21.2 million (Dec 31-2014). Shares outstanding peaked at 27.8 million (Dec 31-2017). At Dec 31-2024, the share count had fallen to 21.7 million. Over the past 7 years, Fairfax has been able to re-purchase almost all the shares that it issued from 2015 to 2017. But the story gets better. Fairfax was able to repurchase the shares at an average cost of $637/share. This was a crazy low average price. (And it was only a slight premium to the average issue price of $456.) Equity ‘deleveraging’ part 2: Take-out minority partners Fairfax has been slowly taking out its minority partners. As a result, at December 31, 2024, Fairfax owned: Brit = 100% Eurolife = 80% (remaining 20% is owned by Eurobank) Allied World = 83.4% My guess is Fairfax will increase its ownership stake in Allied World to 100% in the next 24 months. And because of the call option feature, Fairfax has been able to take out its minority partners at a very reasonable price (it has not had to pay a premium). ———— Let’s now pivot and look at Fairfax’s insurance business. How does it look? P/C insurance business Fairfax’s P/C insurance business has been completely transformed over the past 10 years. The transformation has happened in two phases: P/C insurance growth by acquisition (2015 to 2017) – Build out global platform. Hard market (2020 to 2024) – Grow organically. At the same time, Fairfax has been able to get effective shares outstanding back down to 2014 levels. Over the past 10 years, measured per share: NPW has increased by 304%, which is a CAGR of 15.3%. Float has increased by 198%, which is a CAGR of 11.5%. And with Fairfax taking out its minority partners, almost all of this growth has accrued to Fairfax’s long term shareholders. Summary What have we learned? In 2014, Fairfax saw a significant opportunity to grow its P/C insurance business through acquisition. To capitalize on it they did the following: Acted with conviction and sized their bet very well. They made a large number of acquisitions. They bought quality. They did not overpay. P/C insurance companies were out of favour. The acquisitions were made with a margin of safety. They were very creative with their use of leverage. Fairfax used ‘other people’s money’ to fund the majority of its purchases: a mix of debt and equity (Fairfax shares and minority partners). Using minority partners allowed Fairfax to keep total debt and new share issuance (Fairfax shares) to a reasonable level. With hindsight, Fairfax’s timing was perfect. The company had a couple of years to integrate the new businesses before the start of the hard market in late 2019. Fairfax has been able to fully exploit the historic hard market over the past 5 years. Growing organically in a hard market is the best kind of growth (it is very profitable). Ten years later, Fairfax’s P/C insurance business has been transformed. It is much larger (global), much higher quality and much more profitable. The insurance business is much more diversified and has much better growth prospects. Re/insurance float (the best kind of leverage) per share increased by 198% over the past 10 years, a CAGR of 11.5%. In turn, this has also transformed Fairfax and spiked earnings higher. A significant amount of the earnings that have been generated in recent years has been used to ‘deleverage’ the equity part of Fairfax’s balance sheet. Effective shares outstanding have been reduced back to 2014 levels – and shares were repurchased at very favourable prices. And Fairfax has begun the process of taking out its minority partners, also at very favourable prices (given all the growth that has occurred). Fairfax has been playing the long game. Their actions have been very shareholder friendly. Over the past 10 years, the per share value creation for long-term Fairfax shareholders has been enormous. Yes, some luck was involved. But as we learn from Fortuna, the Roman goddess of luck, ‘fortune favors the bold.’ ———— Addressing the elephant in the room My guess is many of you feel that it is wrong to view equity issuance (specifically share issuance and using minority partners) as a type of leverage. I do it because I think it gives an investor a slightly different and interesting way to look at equity issuance (shares, minority partners etc). Especially for firms, like Fairfax, who actively use ‘equity’ as an important part of their capital allocation framework (using it tactically - flexing it up and down in different ways over the years). Kind of like a temporary source of financing (yes, 10 years is short term for Fairfax). Please let me know your thoughts on this topic.
Viking Posted July 12, 2025 Author Posted July 12, 2025 5 hours ago, TB said: @Viking - I hope you turn out right as it will increase my portfolio value and I got in when it was below book. (before IFRS adjustment) A huge thanks to you for the "big fish that got away" posts. When the price book is close to 1.75 and book value is not GAAP book value but IFRS which increased it by $100-200/share; we are looking at the whole thing differently. Example 1: $1 asset earning 4.2 cents at book value will earn 2.4 cents on the dollar if one pays 1.75$ for the same asset. Example 2: Sleep country which was paid a premium to market price is now worth a whole lot more if one buys the stock at a higher price. As you have diligently tracked; some assets are marked below book value but it is very hard if not impossible to value the whole thing by sum of parts by looking at a handful of assets by looking at public disclosures. Buffett paid in stock when price/book was at 1.8 or so for Dexter shoes in the 80's when the book value was growing at 20%+ per year. @TB, what has me most excited about Fairfax these days is the size of earnings (and its quality/certainty), their significant reinvestment opportunities (much better than peers), and the impact of compounding over the next 5 years. I also really like who they are partnered with their equity holdings (the quality of the CEO's/founders) - and view this is another significant tailwind for economic value creation. So my thesis is very much forward looking. Back in the 1990's and 2000's the big mistake I made with Berkshire Hathaway is I was too focussed on rear view mirror metrics (like BV). So I grossly underestimated the significant value creation that kept happening year after year after year.
nwoodman Posted July 12, 2025 Posted July 12, 2025 4 hours ago, Viking said: Addressing the elephant in the room My guess is many of you feel that it is wrong to view equity issuance (specifically share issuance and using minority partners) as a type of leverage. I do it because I think it gives an investor a slightly different and interesting way to look at equity issuance (shares, minority partners etc). Especially for firms, like Fairfax, who actively use ‘equity’ as an important part of their capital allocation framework (using it tactically - flexing it up and down in different ways over the years). Kind of like a temporary source of financing (yes, 10 years is short term for Fairfax). Please let me know your thoughts on this topic. Nice post. I kind of chuckled at this statement, in a good way. I am sure many of us a saw/see this as debt dressed up as equity so agree it definitely falls under the leverage category. As you rightly point out it was a win/win for all parties. Another example of Fairfax’s creativity but one that is only possible with mutual trust.
Txvestor Posted July 13, 2025 Posted July 13, 2025 (edited) I think the main thing that the market missed during this period was the dramatic change that was underway in the Insurance side of the company. The market was overly focused on their investment side, which was enduring painful losses with equity hedges as well as public investments like AbitibiBowater, Blackberry Sandridge energy and countless others. Beat down after beat down. the private investments were smaller and off the radar somewhat. Heck I felt dismayed. In addition, the sustained period of low interest rate rates post GFC meant there was no reprieve on the bond side either. What earnings they did get from the insurance side of the business they plowed back into buying back equity stakes, and deleveraging as you nicely outlined. I think a still under-recognized asset in Fairfax is the extent of business contacts they have developed all over the world through their fair and friendly reputation, management team and subsidiaries, as well as a culture where those managements are empowered to call HQ when they identify an opportunity. We saw that play out in Greece, in India, with Kennedy Wilson and many other investments. They get the calls. That will be very helpful in the coming years. What's most exciting is that they will have gushers of cash in the coming 3-4yrs. On the Bond side, very likely they can/will monetize on the equity side, and as consistent and diversified as they've become, probably averaged out over 5yrs be quite profitable on the underwriting side as well. Added to that are their now not insignificant non-insurance subsidiaries. How well they allocate that coming mountain of cash will write the next chapter of Fairfax. Edited July 13, 2025 by Txvestor
adventurer Posted July 16, 2025 Posted July 16, 2025 Does anyone know where I can find the release date for Q2 2025? I am having a hard time finding this.
Daphne Posted July 16, 2025 Posted July 16, 2025 Release date should fall around the end of July or start of August latest. I’m guessing July 31. It won’t be announced until about a week before.
SafetyinNumbers Posted July 16, 2025 Posted July 16, 2025 1 hour ago, adventurer said: Does anyone know where I can find the release date for Q2 2025? I am having a hard time finding this. @Daphne is spot on. This is on the Fairfax India website.
Hoodlum Posted July 16, 2025 Posted July 16, 2025 (edited) 1 hour ago, SafetyinNumbers said: @Daphne is spot on. This is on the Fairfax India website. Thanks @SafetyinNumbers for suggesting to check Fairfax India to determine the results timing for Fairfax Financial. I had never considered checking that and had just resided to waiting for the announcement a week ahead of the release. Edited July 16, 2025 by Hoodlum
Viking Posted July 17, 2025 Author Posted July 17, 2025 (edited) Travelers reported Q2 results today. The hard market continues to roll. Chug, chug, chug. It will be interesting to see what WRB and CB have to say. “Overall landscape is very positive.” Business insurance - holding up well. Retention - indicator of market stability. Continued strong retention rates. Tort inflation - is it an issue? “It appears everyone is pricing for it.” Interesting that Travelers decided to sell their Canadian P/C business. Reason? Canadian market is becoming concentrated and incumbents are much better positioned. So growing the business made little sense (especially given we are likely near the end of the hard market). Selling the business at 1.8 x BV to a much larger incumbent was the rational thing for Travelers to do. This suggests the big players are being very rational. Encouraging. Edited July 17, 2025 by Viking
Parsad Posted July 18, 2025 Posted July 18, 2025 Fairfax warning all shareholders or investors interested in Fairfax, to be very careful of what information they view online representing Prem or the company. Looks like there must have been some AI fakes or audio fakes...something...purporting to be Prem or Fairfax. Cheers! Fairfax Issues Reminder Regarding Unofficial Communications - Fairfax Financial
nwoodman Posted July 18, 2025 Posted July 18, 2025 2 hours ago, Viking said: Interesting that Travelers decided to sell their Canadian P/C business. Reason? Canadian market is becoming concentrated and incumbents are much better positioned. So growing the business made little sense (especially given we are likely near the end of the hard market). Selling the business at 1.8 x BV to a much larger incumbent was the rational thing for Travelers to do. This suggests the big players are being very rational. Encouraging. Depending on your timeframe, some useful price discovery
mananainvesting Posted July 18, 2025 Posted July 18, 2025 (edited) Yup, looks like someone was misrepresenting Prem Watsa on Instagram Ads. Edited July 18, 2025 by mananainvesting
wondering Posted July 20, 2025 Posted July 20, 2025 https://www.theglobeandmail.com/investing/globe-advisor/advisor-funds/article-why-this-95-billion-money-manager-is-buying-element-fleet-and-fairfax/?cmpid=rss At the risk of adding to the echo chamber of positive vibes about Fairfax, above is Globe and Mail article about a Cdn portfolio manager and Fairfax is one of his top picks. (sorry its behind a paywall). In summary Craig Jerusalim senior portfolio manager at CIBC Asset Management three stock he owns and continues to buy, DRI Healthcare, Element Fleet, and FFH first bought FFH at a high, wasn't scared. rerated because of improve profits and higher return on equity big windfalls coming in the next quarter continued share buy backs to be added to index eventually No new analysis here that hasn't already been discussed by Viking and Safety and other on the board. But its nice to see portfolio managers join the FFH party. This leads me to my initial point. The critics of FFH are silenced for the moment, but since FFH stock price has been rocketing the last 4.5 years, it has become a huge portion of our portfolio. Any major downturn would kill my portfolio. Going forward what are the risks - super cat event. Terrorist attack, hurricane or earthquake. - stock market correction (not so worried by this one). A correction will give them more opportunities as Viking has stated. More buy backs and investing in downbeaten good stocks. - going the wrong way on in terms of maturity risk with the bonds. So far Brian Bradstreet has done an excellent job at managing the bond portfolio, but there is a chance he makes a significant mistake in the future - crappy equity purchases. For sure there will be bad investments, but as long as the overall portfolio performs well, I am happy. Maybe FFH has crossed that threshold whereby it doesn't make sense for them to purchase the cigar butt stocks, and they are forced (like Berkshire) to invest in quality ROI stock at sensible prices - there are other risks of course, but the above are the obvious I see. Maybe AI in the future will kill the insurance industry - to hard to predict for me.
SafetyinNumbers Posted July 20, 2025 Posted July 20, 2025 24 minutes ago, wondering said: https://www.theglobeandmail.com/investing/globe-advisor/advisor-funds/article-why-this-95-billion-money-manager-is-buying-element-fleet-and-fairfax/?cmpid=rss At the risk of adding to the echo chamber of positive vibes about Fairfax, above is Globe and Mail article about a Cdn portfolio manager and Fairfax is one of his top picks. (sorry its behind a paywall). In summary Craig Jerusalim senior portfolio manager at CIBC Asset Management three stock he owns and continues to buy, DRI Healthcare, Element Fleet, and FFH first bought FFH at a high, wasn't scared. rerated because of improve profits and higher return on equity big windfalls coming in the next quarter continued share buy backs to be added to index eventually No new analysis here that hasn't already been discussed by Viking and Safety and other on the board. But its nice to see portfolio managers join the FFH party. This leads me to my initial point. The critics of FFH are silenced for the moment, but since FFH stock price has been rocketing the last 4.5 years, it has become a huge portion of our portfolio. Any major downturn would kill my portfolio. Going forward what are the risks - super cat event. Terrorist attack, hurricane or earthquake. - stock market correction (not so worried by this one). A correction will give them more opportunities as Viking has stated. More buy backs and investing in downbeaten good stocks. - going the wrong way on in terms of maturity risk with the bonds. So far Brian Bradstreet has done an excellent job at managing the bond portfolio, but there is a chance he makes a significant mistake in the future - crappy equity purchases. For sure there will be bad investments, but as long as the overall portfolio performs well, I am happy. Maybe FFH has crossed that threshold whereby it doesn't make sense for them to purchase the cigar butt stocks, and they are forced (like Berkshire) to invest in quality ROI stock at sensible prices - there are other risks of course, but the above are the obvious I see. Maybe AI in the future will kill the insurance industry - to hard to predict for me. Gift link if anyone wants it: https://www.theglobeandmail.com/gift/b04eb1bcd666173196423362ad31a8785d529ba1ad1cee14b25891c6ca2ccfbf/O2CNLFZ2JBGHFJOHYRCWASGEKE/ Obviously a super cat event would slow down BV growth in the year that it happens but unlike previous years it’s unlikely to result in a loss for the full year given the strong core earnings. Ultimately, it would harden the market and those earnings would be recovered over the next few years. The disclosure on historical cat losses in the ESG report gives a visual representation of how low losses have become measured by cat points as premiums have grown a lot faster than exposure. The more interesting thing to me is what can go right. No analysts are predicting reserve releases to grow very quickly over the next few years but that seems likely to me which means underwriting profit could beat expectations by a wide margin.
Hoodlum Posted July 20, 2025 Posted July 20, 2025 (edited) 1 hour ago, SafetyinNumbers said: Gift link if anyone wants it: https://www.theglobeandmail.com/gift/b04eb1bcd666173196423362ad31a8785d529ba1ad1cee14b25891c6ca2ccfbf/O2CNLFZ2JBGHFJOHYRCWASGEKE/ Obviously a super cat event would slow down BV growth in the year that it happens but unlike previous years it’s unlikely to result in a loss for the full year given the strong core earnings. Ultimately, it would harden the market and those earnings would be recovered over the next few years. The disclosure on historical cat losses in the ESG report gives a visual representation of how low losses have become measured by cat points as premiums have grown a lot faster than exposure. The more interesting thing to me is what can go right. No analysts are predicting reserve releases to grow very quickly over the next few years but that seems likely to me which means underwriting profit could beat expectations by a wide margin. Analysts need to see a tend before they commit to growing reserve releases, similar to how long it took for the share price to get to 1.6x book based on the locked in earnings. It will be interesting to see how reserve releases grow in the coming quarters. Are there certain quarters where the reserve releases could be greater? Edited July 20, 2025 by Hoodlum
SafetyinNumbers Posted July 20, 2025 Posted July 20, 2025 1 hour ago, Hoodlum said: Analysts need to see a tend before they commit to growing reserve releases, similar to how long it took for the share price to get to 1.6x book based on the locked in earnings. It will be interesting to see how reserve releases grow in the coming quarters. Are there certain quarters where the reserve releases could be greater? Are you asking about seasonality in reserve releases? I haven’t investigated but my guess is 4 years after a particularly bad Cat quarter so maybe more likely in Q3s. If you study it please share. I’m also curious about regression analysis on cat losses between FFH and peers. The last three quarters we have seen a tick up which makes sense given when the hard market started. It’s hard to know how big the releases will be but once again it’s not like we are paying for it in the valuation.
Hoodlum Posted July 20, 2025 Posted July 20, 2025 2 hours ago, SafetyinNumbers said: Are you asking about seasonality in reserve releases? I haven’t investigated but my guess is 4 years after a particularly bad Cat quarter so maybe more likely in Q3s. If you study it please share. I’m also curious about regression analysis on cat losses between FFH and peers. The last three quarters we have seen a tick up which makes sense given when the hard market started. It’s hard to know how big the releases will be but once again it’s not like we are paying for it in the valuation. Yes, I was referring to the seasonality of reserve releases. I have not been able to find anything to suggest that any one quarter may have higher releases, but wasn’t sure if I was missing something. I have seen some insurers increase their reserve releases this year as they had under reserved from a few years ago. I don’t know if this could be a multi year trend and so far Fairfax has not needed to do this. I do wonder if this could provide a firming of insurance pricing if it does continue into next year.
wondering Posted July 23, 2025 Posted July 23, 2025 Fairfax Financial Holdings Ltd ( FFH-T -0.29%decrease Scotiabank raises price target to C$2,900 from C$2,500 with a “sector outperform” rating. Scotia said Fairfax displays an attractive combination of value and low risk growth. “We think stocks such as Fairfax are particularly well-positioned for the current environment and market conditions given its combination of relatively low valuation and macro sensitivity and healthy underlying growth profile. We believe the stock has earned a sustainable valuation re-rate on the back of the organic expansion of its insurance operations and significantly higher operating net investment income driven by enhanced interest and dividend yields and investment float. We expect these levels of earnings contribution to be sustainable over the next few years and have enhanced the company’s ROE and growth rate potential of its book value while also adding greater consistency to both of these metrics. Further, given its value investing approach, we think it has the potential to continue to generate outsized investment returns – even against a backdrop of more modest equity market returns. The company has demonstrated resilience through the business cycle and turbulent financial markets, but we view it as a less defensive play than more traditional publicly listed insurers. At this stage of the market cycle, this provides an attractive balance: downside protection thanks to the relative resilience of insurance operations through a potential recession and upside potential when markets recover.”
cwericb Posted July 23, 2025 Posted July 23, 2025 Can't wait to hear what "No Moat" Brett Horne has to say about Fairfax. Probably still waiting for FFH to slip back to $750 CDN.
Crip1 Posted July 23, 2025 Posted July 23, 2025 3 hours ago, wondering said: “We think stocks such as Fairfax are particularly well-positioned for the current environment and market conditions given its combination of relatively low valuation and macro sensitivity and healthy underlying growth profile. So, what other stocks are "such as Fairfax"? -Crip
gfp Posted July 23, 2025 Posted July 23, 2025 18 minutes ago, Crip1 said: So, what other stocks are "such as Fairfax"? -Crip accept no substitutions!
Viking Posted July 24, 2025 Author Posted July 24, 2025 (edited) How are Fairfax’s equity holdings performing YTD in 2025? The value of Fairfax’s equity portfolio is about $26 billion. About 50% of Fairfax’s equity portfolio are private holdings ($13 billion). We don’t have a lot of visibility with these holdings. About 50% of Fairfax’s equity portfolio are publicly traded holdings ($13 billion). Therefore, we have much more visibility with these holdings. Among other things, we can track the changes in market value of the individual holdings. In this post we will look at Fairfax’s largest publicly traded holdings to see what we can learn. What holdings will we look at? To keep our analysis somewhat top-line, we will only look at holdings where the market value of Fairfax’s stake is more than $300 million. Holdings with a MV below $300 million are quite small - representing 1% or less of Fairfax’s total equity portfolio. Holdings this small are not material to the analysis we are performing today. Fairfax has 8 holdings that are publicly traded that have a market cap over $300 million. We will review them all (not just the winners) so we get a complete picture of how this basket of holdings is performing. Eurobank - EUROB.AT FFH-Total Return Swap - FFH.TO, FRFHF Orla Mining - OLA.TO, ORLA Fairfax India - FIH-U.TO Metlen Energy and Metals - MYTIL.AT Thomas Cook India - THOMASCOOK.BO Commercial Industrial Bank (Egypt) John Keells (Sri Lanka) We will look at the year-to-date performance of each holding. We will break it out by quarter - this will help us understand what might be coming when Fairfax reports Q2 results. And it will also give us some insight into how Q3 is looking (about 3 weeks in). At the end of our post, we will summarize the results. A note on volatility Yes, equities are very volatile. The market value of individual stocks can swing dramatically (often 40%) in any given year. Looking at stocks over a 7 month period (like I am doing) should be done with an appropriate amount of scepticism. Why do it? Because it provides an interesting data point. And a bunch of data points - when put together - can start to paint a picture. Let’s get started. ————— 1.) Eurobank - EUROB.AT Eurobank is - by far - Fairfax’s largest equity holding (public or private). YTD-2025, the market value of Fairfax’s position in Eurobank is up $1.7b, or 62%, or $79 per Fairfax share (pre-tax). Yes, that is exceptional performance. The management team at Eurobank continues to execute very well. The Greek economy continues to perform well. Greek banks are also getting re-rated higher, moving their valuations closer to European banking peers. Weak US$ has also been a tailwind in 2025. Eurobank is an associate holding (equity accounted) so the significant YTD gain in market value is not being captured in Fairfax’s accounting results (EPS, BV or ROE). ————— 2.) Fairfax - Total Return Swap - FFH.TO, FRFHF FFH-TRS is - by far - Fairfax’s 2nd largest equity holding (public or private). YTD-2025, the market value of Fairfax’s position in FFH-TRS is up $683 million, or 28%, or $32 per Fairfax share (pre-tax). Yes, that is exceptional performance. Fairfax continues to perform very well. At the same time, the stock is also getting re-rated higher, moving its valuation closer to P/C insurance peers. FFH-TRS is a mark-to-market holding so the significant YTD gain in market value will be captured in Fairfax’s accounting results (EPS, BV or ROE). —————— 3.) Orla Mining - OLA.TO, ORLA Fairfax’s 3rd largest publicly traded equity holding is Orla (a gold miner). YTD-2025, the market value of Fairfax’s position in Orla is up $462 million, or 82%, or $21 per Fairfax share (pre-tax). What is causing the strong performance? Gold is viewed as being a hedge against two things: uncertainty and inflation. Gold appears to be in a bull market. Orla announced today that it was experiencing some challenges at its Camino Rojo property (which caused the stock to sell off). This is a good reminder of the volatility that comes with owning equities, especially commodity companies. Orla is a mark-to-market holding so the YTD gain in market value will captured in Fairfax’s accounting results (EPS, BV or ROE). —————— 4.) Fairfax India - FIH-U.TO Fairfax’s 4th largest publicly traded equity holding is Fairfax India. YTD-2025, the market value of Fairfax’s position in Fairfax India is up $230 million, or 25%, or $11 per Fairfax share (pre-tax). That is solid performance. Fairfax India’s biggest holding - by far - is Bangalore International Airport (BIAL), the third largest airport in India (they own 74% of the trophy asset). India is expected to be the top performing major economy over next decade. Fairfax India is not a mark-to-market holding so the YTD gain in market value will not be captured in Fairfax’s accounting results (EPS, BV or ROE). —————— 5.) Metlen Energy and Metals - MYTIL.AT Fairfax’s 5th largest publicly traded equity holding is Metlen Energy and Metals. YTD-2025, the market value of Fairfax’s position in Metlen is up about $208 million, or 49%, or $10 per Fairfax share (pre-tax). Yes, that is exceptional performance. There are lots of tailwinds for the company. The stock will likely begin trading on LSE on Aug 4. Weak US$ is also a tailwind for the stock. Metlen is a mark-to-market holding so the YTD gain in market value will be captured in Fairfax’s accounting results (EPS, BV or ROE). —————— 6.) Thomas Cook India - THOMASCOOK.BO Fairfax’s 6th largest publicly traded equity holding is Thomas Cook India (TCI). YTD-2025, the market value of Fairfax’s stake in TCI is down $75 million. Indian stocks sold off quite a bit in Q1. Since then, TCI has rebounded strongly - the stock was up in Q2 and it is up again in July. TCI is a consolidated holding so the decline in market value is not captured in Fairfax’s accounting results (EPS, BV or ROE). —————- 7.) Commercial Industrial Bank (Egypt) Fairfax’s 7th largest publicly traded equity holding is Commercial Industrial Bank (CIB), an Egyptian bank. YTD-2025, the market value of Fairfax’s position in CIB is up $72 million, or 22%, or $3 per Fairfax share (pre-tax). CIB is a mark-to-market holding so the YTD gain in market value will be captured in Fairfax’s accounting results (EPS, BV or ROE). —————— 8.) John Keells (Sri Lanka) Fairfax’s 8th largest publicly traded equity holding is John Keells (JKL), a large conglomerate located in Sri Lanka. YTD-2025, the market value of Fairfax’s position in JKL is up $26 million, or 8%, or $1 per Fairfax share (pre-tax). JKL is an associate holding (equity accounted) so the YTD gain in market value is not being captured in Fairfax’s accounting results (EPS, BV or ROE). —————— How are Fairfax’s largest publicly traded equities performing YTD 2025? In summary, Fairfax’s 8 largest publicly traded equities are performing very well. YTD-2025, in aggregate, they have increased in market value by $3.3 billion, or 39%, or $153 per Fairfax share (pretax). Our analysis does not include 55% of Fairfax’s equity holdings YTD-2025, Fairfax’s total equity portfolio has increased in value by much more than $3.3 billion. At July 22, 2025, Fairfax’s total equity portfolio was about $26 billion. The market value of the 8 companies included in our analysis above is about $11.8 billion, or 45% of the total. This means our analysis does not capture any of the value creation that has been happening at the remaining 55% of the equity holdings. These are mostly private holdings - well run and well positioned companies with solid prospects. What else did we learn? Fairfax runs a concentrated portfolio. Its two largest holdings (Eurobank and FFH-TRS) continue their exceptionally strong performance (it has been the same story with these two holdings for 4 straight years). The strong performance is broad based - 6 of 8 holdings have increased in market value by 20% or more. The holdings do not look expensive. The increase in market value is not due to out-of-control speculative behaviour on the part of investors. Rather it appears to be undervaluation being corrected combined with improving fundamentals. Economic results versus accounting results The economic results being delivered by Fairfax’s equity portfolio are much higher than the accounting results. Of the total increase in market value of $3.3 billion, about $1.4 billion (44%) is mark-to-market. This increase will show up in Fairfax’s reported results (EPS, BV and ROE). The other $1.9 billion (56%), or $86 per Fairfax share (pre-tax), in value creation will not show up in Fairfax’s reported results. The gap between economic/intrinsic value and book value is widening at Fairfax (and has been for years). The quality of Fairfax’s equity portfolio is shining though Fairfax has been hard at work since about 2018 improving the quality of its total equity portfolio. 7 years later, the benefits can be seen from the consistently strong performance of the group of holdings. This bodes well for future results. The investment portfolio is tracking to deliver a strong year in 2025 Total return on the total investment portfolio (bonds and stocks) is tracking to exceed 10% in 2025. This would put the average over the past 3 years at about 9.5%. Yes, we will see some quarter to quarter volatility. But looking out a couple of years, the significant value creation is unmistakeable. Seeing the value of Fairfax’s business model Fairfax’s P/C insurance operations have never been better positioned. Fairfax’s investment management business has never been better positioned. Over the past 5 years, Fairfax’s management team has been putting on a capital allocation clinic. In turn, Fairfax has been delivering best-in-class results. At the same time, the quality and certainty of Fairfax’s earnings has never been better. We are getting to an interesting part of the P/C insurance cycle - the hard market is slowing. Fairfax is uniquely positioned. As P/C insurance slows Fairfax will be able to shift capital to its investment management business (where it has an amazing range of proven capabilities) - Fairfax will have much better reinvestment opportunities than peers. This will allow Fairfax to keep both its top-line growth steady and return on invested capital high (and likely better than peers). The exceptional YTD results being posted by its 8 largest publicly traded equity holdings (+39%) is just the latest data point showcasing Fairfax’s capabilities and the superior strength of its business model (especially compared to P/C insurance peers). Edited July 24, 2025 by Viking
Hamburg Investor Posted July 25, 2025 Posted July 25, 2025 @Viking Thank you again for another deep dive. What you share to me feels like different parts of a mosaic, together building a rich picture; more than I have with any other investment. Regarding q2 earnings: My guess is, that you have a relatively clear picture yourself about the mininum to expect (and I guess, that this is above consensus… ;-)). My general thinking is: There’s so much hidden value (and growing!!!), that we will have so much upside from time to time, when something is sold, which doesn’t regularly run through the earnings. So there’s something like a minimum, that can be anticipated; but the upside potential is just so much bigger than 1, 2, … years ago, as the „hidden value per asset“ has just grown so much on average. Do you agree?
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