Author Topic: Fairfax 2018  (Read 105414 times)

Spekulatius

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Re: Fairfax 2018
« Reply #410 on: June 16, 2018, 05:15:56 PM »
I try to avoid anchoring on the 1B price tag.

The RIM/Blackberry position was made many years ago when the balance sheet was substantially smaller. I suspect as a percentage of assets, the Seaspan deal is in line with their previous large positions.

The positions that FFH takes are no slam dunks and have significant risk, as well as considerable upside. I think they should be sized accordingly, such that even 2 of them blowing up should not impair the company.
To be a realist, one has to believe in miracles.


petec

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Re: Fairfax 2018
« Reply #411 on: July 02, 2018, 06:17:29 AM »
I think the Sokol presentation at the investing presentation the day before the Fairfax annual event was very informative and impressive. 

Does anyone have notes or a copy of the presentation?

petec

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Re: Fairfax 2018
« Reply #412 on: July 02, 2018, 06:23:16 AM »
https://www.bloomberg.com/news/articles/2018-05-31/fairfax-is-said-to-prep-new-500-million-investment-in-seaspan

The gravy is at the bottom of the article - not only do they get a quick gain on the warrants but they get gifted another 25m warrants at $8.05 - massively in the money - for exercising the first batch early. Sokol must be on the FFH payroll!

Saluki

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Re: Fairfax 2018
« Reply #413 on: July 02, 2018, 06:41:30 AM »
I think the Sokol presentation at the investing presentation the day before the Fairfax annual event was very informative and impressive. 

Does anyone have notes or a copy of the presentation?

A copy of the powerpoint is here if you scroll down:

https://www.ivey.uwo.ca/bengrahaminvesting/events/2018/04/2018-value-investing-conference/

It doesn't look like they posted the talk though. 
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petec

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Re: Fairfax 2018
« Reply #414 on: July 02, 2018, 10:24:32 AM »
Many thanks.

petec

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Re: Fairfax 2018
« Reply #415 on: July 03, 2018, 05:22:17 AM »
I try to avoid anchoring on the 1B price tag.

The RIM/Blackberry position was made many years ago when the balance sheet was substantially smaller. I suspect as a percentage of assets, the Seaspan deal is in line with their previous large positions.

Okay.  From a risk management perspective, do you have a view point about the appropriate position size?  I have certainly made my views clear about the difference between ploughing $1b into RIM vs ploughing $1B into JNJ....as well as the difference between investing $500m in Bank of Ireland and having it grow to $1B+ vs investing increasing amounts of capital into a posiiton.  So, does $1b in seaspan make sense, or should they bump it to $2B (basically full ownership)?  Is this a prudent investment at its current sizing and does it ever become imprudent?

SJ

To me the structure is more important than the size. They have $1bn in Blackberry with full equity upside, but $500m of that has practically no downside (company is net cash and will generate FCF from this year, bond matures in 3 years). So, you're massively levered to anything positive happening but downside is 4% of shareholder's equity (andf 1.25% of the whole portfolio, which overall is very conservatively invested).

Seaspan is structured the same way (and I would argue there is very little risk in the bonds, despite the headline leverage, due to the phenomenal amount of contracted free cash flow the company will generate now that is has no capex).

The other thing that has changed is that Fairfax is a much bigger company due to both equity issues and realisation of value via asset sales. So while Blackberry might have been too big when it was made, I don't think either is now.


 


Daphne

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Re: Fairfax 2018
« Reply #416 on: July 26, 2018, 03:10:37 PM »
National Bank of Canada is initiating coverage on Fairfax Financial Holdings Ltd. (FFH-T) with a strong rating.

Analyst Jaeme Gloyn started coverage with an “outperform" rating and a target price of C$850, which expects a total return of about 20.1 per cent, including the company’s 1.4 per cent dividend.

Fairfax attempts to achieve 15 per cent BVPS [book value of equity per share] annual growth over the long term through solid underwriting performance and a focus on generating total returns on its asset portfolio – the latter a differentiator versus P&C insurance peers. With a market cap of US$15.5-billion and net premiums written of about US$12 billion (2018E), FFH is one of the top 10 insurance companies in North America," he said.

“We believe the company’s diversified operations (geographic, business lines, risks) and decentralized management approach support stable premiums growth (mid-single digit) and consistent combined ratio performance (long-term average of 95 per cent). We believe recently soft total return performance is in the company’s rear-view mirror following a shift to a more “risk-on” (but still conservative) approach. Though the timing of net gains is uncertain, we believe the company holds meaningful upside on several “at-cost” investments. Moreover, continued deployment of cash into other investments as well as declining interest expenses will further support stronger investment profitability,” he said.

“We expect Fairfax to deliver consistent double-digit ROE [return on equity] over the long term. Combining our outlook for underwriting profitability and investment returns, we believe FFH will generate about 10 per cent ROE through our forecast horizon. Supported by a solid balance sheet and capital levels, we expect management to enhance ROE through purchasing non-controlling interests, share buybacks and disciplined increases in underwriting leverage (i.e., in hard markets). Catastrophes (e.g., 2017) and adverse market movements (eroding total returns) pose material risks to our outlook; however, we believe these risks are sufficiently reflected in our target valuation,” he said.

“With a consensus ROE forecast of just 8.5 per cent in 2019, implying a approximately 1.2 times P/B [price to book value] – also the current trading multiple – we believe consensus (and the market) are missing some aspect of the profitability outlook. We use a 1.3 times P/B multiple on our Q2 2019 BV estimate to arrive at our price target of US$650 (C$850). Given an approximately 20 per cent total return, including a 1.4 per cent dividend yield, we rate the shares Outperform.”

The shares are currently trading near C$720. The median target price is C$755.

walkie518

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Re: Fairfax 2018
« Reply #417 on: July 26, 2018, 04:53:17 PM »
I try to avoid anchoring on the 1B price tag.

The RIM/Blackberry position was made many years ago when the balance sheet was substantially smaller. I suspect as a percentage of assets, the Seaspan deal is in line with their previous large positions.

The positions that FFH takes are no slam dunks and have significant risk, as well as considerable upside. I think they should be sized accordingly, such that even 2 of them blowing up should not impair the company.

thoughts on Seaspan?

petec

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Re: Fairfax 2018
« Reply #418 on: July 27, 2018, 01:53:46 AM »
thoughts on Seaspan?

It's ending a capex programme so FCF is exploding. It's got a decent capital allocator at the helm and if he can't find any opportunities just reducing debt will be very good for the equity. It's at a good point in the capital cycle (new supply at multiyear lows). It's on c.5x FCF. Looks good to me.

walkie518

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Re: Fairfax 2018
« Reply #419 on: July 27, 2018, 06:45:06 AM »
thoughts on Seaspan?

It's ending a capex programme so FCF is exploding. It's got a decent capital allocator at the helm and if he can't find any opportunities just reducing debt will be very good for the equity. It's at a good point in the capital cycle (new supply at multiyear lows). It's on c.5x FCF. Looks good to me.

The bear case is one of explosive leverage?  Is there anything else?

From what I understand, Seaspan looks to clean up the balance sheet then pick up the pieces in the next downturn occurs in the shipping industry?