Fairfax 3.0

[Dazel]

https://simplywall.st/stocks/ca/insurance/tsx-ffh/fairfax-financial-holdings-shares/dividend
 

 

You have to set up an account to see this but it is worth noting their cashflow valuation and future value for Fairfax is $5,400 cdn. This is the first time I have seen Fairfax get this type of valuation. Fairfax 3.0

[KFRCanuk]

2 hours ago, Dazel said:

https://simplywall.st/stocks/ca/insurance/tsx-ffh/fairfax-financial-holdings-shares/dividend
 

 

You have to set up an account to see this but it is worth noting their cashflow valuation and future value for Fairfax is $5,400 cdn. This is the first time I have seen Fairfax get this type of valuation. Fairfax 3.0

 

Edited January 23 by KFRCanuk

[RockNation]

Indeed interesting. I think.. most of us here use value style methodologies that gives us an undervaluation to Fairfax today. Via TTM or forward EPS, or sum of BVPS & float per share, or relative valuation to close sector comparable or.. using a book value figure like “1.5 times book” or whatever.  All of this points to coming up with a fair IV range of Fairfax demonstrating undervaluation without requiring to even factor in or pencil in a thought to growth or further home runs, its a low bar to jump over for value style investing.

Better yet, it’s future multiples is what really counts for returns from here. As far as Mr. Market is concerned, Fairfax will only now not drop the ball in the next 24 months, despite the exceptional wealth creation the past 4-5 years. The market still does not place much emphasis on any kind of growth, stability or management confidence in achieving further success. This still makes for interesting set up in Fairfax over time. If a tech guru CEO were making moves like Fairfax the past 4-5 years, people would be just over the moon in high phrase. Fairfax has just been quietly getting business done. Consistency, confidence, growth, profitability always lead to higher multiples in advance…. Or when it actually happens. Fairfax is still mostly being priced as it happens and not much in advance or anticipation. Not yet anyway.. it really shows a solid margin of safety and wide range of potential positive outcomes. Fairfax 3.0 as the thread suggests, is not something most market participants seem to be looking at just yet. This set up of value paired with possible growth is rare in a company of this size. There are many worst bets that can be made. 

of course…. Lots of things can happen in the short term that can cause Fairfax to fall to book value or 0.9 or whatever - but that drawdown or worst can happen to most stocks and most things people chase anyway. Fairfax would smooth out volatility given how it’s unlikely to destroy book value over periods of time. 

[LC]

No I disagree. I think Fairfax has a complex business structure and it is not clear where growth will come from.

 

And partly I think it should trade at a lower multiple for that reason. (Disclosure FFH is still like 35-40% of my portfolio)

 

A big portion of the earnings growth in the past few years has come from expertly trading the bond portfolio. 

The second largest portion has been from the extension of the insurance hard market.

The third largest portion has been growth and valuation expansion in its underlying investments.

 

Now, at best it is a difficult exercise to gain confidence that those three avenues of growth will continue.

 

The bond portfolio:

If rates fall, they can sell and realize some gains. But then they will be subject to reinvestment risk.

If rates stay the same, the only place growth can come from is increasing the portfolio size. More on that below.

 

Insurance/Primary LOB:

Does anyone know when a hard market will/will not end? I don't think so. I believe management is already allocating capital by buying-out minority partners, rather than writing more business.

So management probably thinks the hard market is slowing. This also has the effect of slowing growth in the size of the bond portfolio, since they are not bringing  in more premiums. 

 

So you have factors slowing growth in their two primary income drivers.

 

Underlying investments: There are many diverse investments, they are small in size, and this is not Fairfax's primary business. Prem has a spotty record here. This is the classic conglomerate discount. 

 

In other words, if Prem et al cannot clearly state where growth will come from, why should this trade at a premium? 

[Malmqky]

12 hours ago, Dazel said:

https://simplywall.st/stocks/ca/insurance/tsx-ffh/fairfax-financial-holdings-shares/dividend
 

 

You have to set up an account to see this but it is worth noting their cashflow valuation and future value for Fairfax is $5,400 cdn. This is the first time I have seen Fairfax get this type of valuation. Fairfax 3.0

Unfortunately SimplyWallstreet is kind of a joke. I wouldn’t put any stock in their valuations. Take a look at some shitcos and see what they value them at.

 

It is nice to see a valuation thrown out like that for FFH though  

[Dazel]

Fairfax 3.0 will have very few investors left from this board and that is the reason I created this thread. Everyone has very good points that are negative because they are biased from Fairfax 2.0 and no one can blame them. Those that were around during Fairfax 1.0 did not ask where the growth would come from when the stock went from $3 to $30 or $10 to $100 or $30 to $300. 

I have my own biases of course. Would I have been able to hold Berkshire? After coke went up 3X would I have thought it would do another 7X? 
 

Do I think that Bradstreet can do 10% a year? Yes I do. Is it probable? Yes to me it is…to the market no it is not. Do you know what the compounding is on that? Do you what market multiple Fairfax would get on that? Think Markel and think $10b a year.  
 

So coke doing 10X in 10 years or Bradstreet doing 10% a year over 10 years what is more probable? Gotta love markets.

 

 

Edited January 24 by Dazel
Making it better

[giulio]

7 hours ago, Dazel said:

Bradstreet doing 10% a year over 10 years what is more probable

10% pa investing in bonds? How? 

Btw, I've seen some pretty high estimates for earnings in this thread...have interests expenses, taxes and corporate costs been taken into account?

[Dazel]

bonds trade like stocks except bonds send interest payments (interest rates are much higher now and there is much more volatility)  during the trading where as there is smaller yield from stocks/dividends and Bradstreet is the best in the bond business. 

 

Take a look At ticker “TLT” (UST long bond) there is an 50% spread from high to low this year! Educate your self from there. Corporate bonds trading and income would be the higher returning bond instrument (more volatility) and in a very aggressive stance could take allow Bradstreet to do 10% plus. Most everyone should be looking at the bond market here as it is more attractive then the stock market for sure! It makes me giddy to think Bradstreet now has $40b to play with! In 2002-2003 he made a billion bucks on a $5b long bond bet. He made $2b plus (30x) on credit default swaps in 2007-2008. 

 

i also said it was an outlier like for coke going up 10X in 10 years…in the 1990’s. Google and Apple etc trounced those returns Buffett got a good chunk of Apple. 
 

Bond bets gone bad….ask Bank of America and Charles Schwab the other side of Bonds they have well over $100b in unrealized losses from buying long bonds a few years back.

 

Make no mistake Bradstreet is the “Bond King” and the investing world has never heard of him.

 

Edited January 24 by Dazel
Spelling

[Daphne]

Dazel I’m so glad to see you back. Long before Viking graced our shores, you were our north Star, our voice in the wilderness. We missed you.

Edited January 24 by Daphne
Typos

[Dazel]

Thanks Daphne. I owe Fairfax my time for sure. Bet they are having an absolute blast at head quarters!

 

Fairfax 3.0 will be soooo fun!

[Phoenix01]

Beside Brian potentially making huge gains with the rise in the long term rates, what will the impact be on the the underwriting?  How many P&C insurance companies are going to be capital constraint based on these rising rates?  Will this be the basis for the hard market to continue?  Have any board members dug into this?

[Hsmpanl]

3 minutes ago, Phoenix01 said:

Beside Brian potentially making huge gains with the rise in the long term rates, what will the impact be on the the underwriting?  How many P&C insurance companies are going to be capital constraint based on these rising rates?  Will this be the basis for the hard market to continue?  Have any board members dug into this?

Definitely novice here but would think higher rates could make existing insurers be more aggressive on pricing since float is worth more. Curious to hear from someone who knows/has seen this tape before.

[Phoenix01]

They may not be able to write more business if their balance sheets are impaired by rising longer term rates.  I am trying to figure out which of FFH competitors are exposed.

[Dinar]

Chubb CEO seems quite bullish on market conditions, expects to grow operating earnings at double digit rate.  

[Dazel]

Thats positive at Chubb

 

bond rates have not moved enough to cause enough trouble for the insurance industry. In another thread I “speculated” that Bradstreet may gave taken short term bond gains and went long term…he is the bond kind. We will see in a few weeks….

[Hsmpanl]

2 hours ago, Dinar said:

Chubb CEO seems quite bullish on market conditions, expects to grow operating earnings at double digit rate.  

I love that dude. You ever listen to one of their earnings calls? Almost every analyst gets berated for not knowing their shit. It’s top tier entertainment. Glad they see favorable market conditions, definitely positive read through for berk and Fairfax.