Author Topic: Fairfax 2020  (Read 127035 times)

TwoCitiesCapital

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Re: Fairfax 2020
« Reply #620 on: October 29, 2020, 03:34:10 PM »
Number seem alright. Liquidity still seems a little constrained, but they were able to send $100M to insurance companies for growth, retain holding company cash, repurchase a few million in shares, and still have liquidity available to them on their revolver.

Insurance results were positive which is a plus for me after COVID and hurricanes and wildfires.

Ultimately, float + equity + debt is $1,600/share working on your behalf for every $265 US invested (6x leverage). Very low bar for shareholders to hit 15% compound here on out as return on float/equity/debt @ 3% will accomplish it even without considering benefits of repurchases below book.


Viking

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Re: Fairfax 2020
« Reply #621 on: October 29, 2020, 04:35:15 PM »
Do we need to worry about the amount of cash the company is chewing through?

$1.1 billion in cash. But $700 million of this has been funded from the credit facility they tapped when the pandemic was raging earlier this year.

Looks to me like they need to find some cash from somewhere... Asset sale? Better operating results? Share issue?
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- At March 31, 2020 the company had drawn $1,770.0 million on its credit facility, solely as a precaution, to support its insurance and reinsurance companies should it be needed if the effects of the COVID-19 pandemic continued for an extended period. The company subsequently repaid $1,070.0 million of that borrowing, leaving $700.0 million borrowed under that facility currently.

- On August 28, 2020 the company acquired the minority interest in Brit for cash consideration of $220.0 million.

- The company held $1,153.0 million of cash and investments at the holding company level ($1,095.9 million net of short sale and derivative obligations) at September 30, 2020, compared to $975.5 million ($975.2 million net of short sale and derivative obligations) at December 31, 2019.

- The company's total debt to total capital ratio, excluding non-insurance companies, increased to 31.3% at September 30, 2020 from 24.5% at December 31, 2019, primarily reflecting the $700.0 million drawn on the credit facility and decreased total capital due to decreased common shareholders' equity.

Gregmal

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Re: Fairfax 2020
« Reply #622 on: October 29, 2020, 05:05:48 PM »
Geez, I hadn't looked at this one in a good while. What a total dumpster fire.

Parsad

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Re: Fairfax 2020
« Reply #623 on: October 29, 2020, 05:20:56 PM »
Geez, I hadn't looked at this one in a good while. What a total dumpster fire.

What the heck are you talking about?  They just went through the pandemic, plus a fairly high catastrophe loss season, and the insurance operations still hit a 98.5% CR.  They have tons of cash to deploy, debt/equity is very manageable and they can issue a few hundred million in new long-term debt at cheap rates to repay the revolver if they need to.  The shares they are buying back are accretive when bought under book value, and if they achieve a 3% return on their portfolio plus a return to book, you are looking at a 150%-175% return over the next 4-5 years.  Cheers!
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Gregmal

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Re: Fairfax 2020
« Reply #624 on: October 29, 2020, 05:32:11 PM »
I hope so. I've just been watching this damn thing for so long and everytime there is a glimmer of something possibly positive its deemed a sign that things will be turning the corner any day now, with huge upside. The company is positioned for bad times in a good market, good times in a bad market...I mean at some point you just have to look at the past 10 years of decisions and mistakes and give credit where it is due. This isn't a company in an out of favor sector like O&G, or retail... I get that its gotten the short end of the covid stick similar to other insurance, banking and RE firms....but its supposed to be a company with "the smart guys" who are ahead of the curve. And its not and it hasn't been for over a decade now. Is there any case to say that on a risk adjusted basis you arent just better off owning WFC or BRK?

StubbleJumper

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Re: Fairfax 2020
« Reply #625 on: October 29, 2020, 06:25:12 PM »
What can you say?  It was a pretty good quarter, all things considered.  Can't complain about EPS of $4/sh and a 101 CR on an accident year basis.  A few observations:

1) Double-digit growth in Net Written is encouraging.  What is more perplexing is how light the cats were compared to some of the other players in the industry (RenRe, Arch, etc).  Seriously, the Atlantic basin ran out of English alphabet letters for this hurricane season and the meteorologists have had to revert to naming storms after Greek letters.  Add to that the wildfires in the Western US and the mid-west derecho, it is interesting how few non-covid cat points that FFH registered.  After all of that, the accident year CR was 101 for the quarter?  Not too shabby.

2) How are losses from short equity exposures continuing to overwhelm gains from the long?  What shitty selection of securities drove that result?  It's hard to believe how poorly the equity portfolio has performed.

3) The holdco repaid a large chunk of what was drawn on its revolver during Q3.  Was that due to the commercial paper having come to term and the absence of acceptable short term investments to replace it?  It looks to me as if FFH has just enough equity to draw the entire $2B revolver without violating its covenants.  A decent result in Q4 would make things a bit more comfortable.  They will probably want to float another bond offering early in the new year.

4) This is not new in Q3, but it's nice to see a considerable chunk of the bond holdings in the 1 to 5 year category, because prospects for rolling maturing bonds during 2021 don't look great.  Maybe 2023...

5) FFH bought the rest of Brit for $220m in August.  Didn't Prem tell us that it would be about $100m?  Maybe all of those business interruption covid claims made Brit more valuable  ;D ? Interesting that Brit paid a $20.6m dividend to the minority interest back in April and FFH bought that interest out for $220m.  What the hell kind of arrangement was that?


Better than I had expected....

SJ



Viking

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Re: Fairfax 2020
« Reply #626 on: October 29, 2020, 07:25:06 PM »
I hope so. I've just been watching this damn thing for so long and everytime there is a glimmer of something possibly positive its deemed a sign that things will be turning the corner any day now, with huge upside. The company is positioned for bad times in a good market, good times in a bad market...I mean at some point you just have to look at the past 10 years of decisions and mistakes and give credit where it is due. This isn't a company in an out of favor sector like O&G, or retail... I get that its gotten the short end of the covid stick similar to other insurance, banking and RE firms....but its supposed to be a company with "the smart guys" who are ahead of the curve. And its not and it hasn't been for over a decade now. Is there any case to say that on a risk adjusted basis you arent just better off owning WFC or BRK?

Fairfax is a three legged stool:
1.) insurance / underwriting - solid
2.) investing part 1: fixed income - solid
3.) investing equities / op co’s - a mess

The way to make very good money with Fairfax for the past 20 years is to wait for the turn in stool leg 3. (Mr Market was always slow to catch on so the shares became $20 bills lying on the ground in plain sight for all to see.) The problem for Fairfax investors is stool leg 3 has underperformed for the last 7 years (more than offsetting the gains made in stool legs 1 and 2).

The good news for new investors in Fairfax is with shares trading at US$266 they will likely do well moving forward if Fairfax simply stops losing money with bucket 3. Crazy thing to say... but i think it is true (posters think i am only hard on Trump :-)

And that is how out of favour this company is today... People do not want to own it because they expect Fairfax to lose more money in bucket 3. There are lots of legacy dogs still barking in the shadows: Toys R Us, Recipe, Blackberry to name a few that quickly come to mind...

Now having said all that i might reestablish a position tomorrow. Because, to Sanjeev’s point, if they ever start to make a positive return from stool leg 3 the stock will rock.

The other potential catalyst for shares is Prem’s creativity in surfacing value.

« Last Edit: October 29, 2020, 07:30:01 PM by Viking »

Parsad

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Re: Fairfax 2020
« Reply #627 on: October 29, 2020, 09:56:46 PM »
I hope so. I've just been watching this damn thing for so long and everytime there is a glimmer of something possibly positive its deemed a sign that things will be turning the corner any day now, with huge upside. The company is positioned for bad times in a good market, good times in a bad market...I mean at some point you just have to look at the past 10 years of decisions and mistakes and give credit where it is due. This isn't a company in an out of favor sector like O&G, or retail... I get that its gotten the short end of the covid stick similar to other insurance, banking and RE firms....but its supposed to be a company with "the smart guys" who are ahead of the curve. And its not and it hasn't been for over a decade now. Is there any case to say that on a risk adjusted basis you arent just better off owning WFC or BRK?

Fairfax from this base forward will probably do better than Berkshire long-term.  Just based on the discount it is trading at, and the size advantage it holds in terms of the universe of investments it can look at.  I think WFC will do nearly as well over the next 4-5 years as FFH.  Cheers!
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petec

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Re: Fairfax 2020
« Reply #628 on: October 30, 2020, 01:22:54 AM »
Do we need to worry about the amount of cash the company is chewing through?

No.

The insurance subs are in a hard market. They would absolutely ooze cash (which could be dividended to the holdco) if they stopped growing.

What we need to worry about is that Fairfax has somehow contrived to arrive at a place where it can’t fund growth in a hard market or buy back many shares at bargain levels without taking on more debt. The sequence of bad decisions that caused us to arrive at this point is staggering.
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petec

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Re: Fairfax 2020
« Reply #629 on: October 30, 2020, 02:45:31 AM »

5) FFH bought the rest of Brit for $220m in August.  Didn't Prem tell us that it would be about $100m?  Maybe all of those business interruption covid claims made Brit more valuable  ;D ? Interesting that Brit paid a $20.6m dividend to the minority interest back in April and FFH bought that interest out for $220m.  What the hell kind of arrangement was that?


OMERS always got paid its dividends in cash. I'm not sure whether that was a preferential arrangement, or whether Fairfax opted to capitalise Brit to grow by taking stock instead.

I need to revisit the disclosures on Brit over the years. I think OMERS have done quite well.
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