Author Topic: Fairfax2019  (Read 75925 times)

petec

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Re: Fairfax2019
« Reply #110 on: December 23, 2019, 11:02:58 PM »
My guess is FFH is pretty motivated to do all three (take out minority partners, support premium growth and buy back stock). I expect we will see more transactions in the next year or two that position them to execute on all three objectives.

I agree they are motivated to do all three. But as you imply, they are not capitalised to do all three. The excess underwriting capacity is not in the subs that are seeing the most market hardening, so they are having to inject capital into the subs to grow. That's limiting the buyback, which is frustrating but probably the right decision because float is generally sticky once you've got it. My guess is we will not see much in the way of buybacks while the market is hardening* and they are buying in minorities, which is clearly a priority. I didn't mind that because I felt buying in minorities was, in effect, a buyback. But here they are selling a minority, which makes little sense to me unless there's truth in the assertion that Riverside UK can lever more and grow more with two owners than it can with one. But I can't think why that would be true.

*Unless reinsurance hardens, in which case they can grow *and* generate cash flow to buy back, because Odyssey is overcapitalised.
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gary17

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Re: Fairfax2019
« Reply #111 on: December 23, 2019, 11:28:02 PM »
From contacts I have, seems like the scenario Prem was concerned about China a few years ago may materialize.  venture capital seems to have dried up.  Government spending is down (subsidies for solar , wind and now EV are being cut, as well as many others) , and finally, Trump put a real dent on their export.  No wonder the chinese caved (they were going to earlier if Trump hadn’t changed his mind and pushed harder).  No technology transfer will have impact on china.  And the forced retirement of Jack Ma is sending a strong signal to many young , smart minds in China to rethink whether they should invest their career in China or elsewhere.   
Things like wechat and alipay are all controlled by a few communist elites that paved the way for the broad adoption in China- and this at the same time allows the government to have very direct control of data of its citizens. 
I think the US with its free enterprise and democracy backbone will continue to be the economic powerhouse that  marches forward….
PS. China’s gdp likely very low.  lower than the 6% states have

Dazel

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Re: Fairfax2019
« Reply #112 on: December 24, 2019, 06:25:50 AM »

InvestMD et all,

While I would not quite call it complete humble pie I am eating with my early predictions for the year...I was wrong footed on a lot!!!! I will stand by my outlandish at the time prediction on 2019 profit though....there is more than one way to get to heaven...Lol.

Without going through specifics....Fairfax has strengthened significantly in my mind (Seaspan home run helps)....

1. Bond performance was ok not great...
2. Blackberry and resolute were a bust...Eurobank headed higher....catalysts for 2020?
3. Insurance was excellent and is the backbone...very pleased
4. India has strengthened but has not really shown up (Fairfax India lagging)
5. There are several underrated investments in their stable that will be monetized
6. Buybacks did not materialize....I can see why and appreciate strength at the insurance level

All in all a solid year at Fairfax and the future looks very bright. I was involved in discussions with a third party who I encouraged to contact Fairfax for a strategic investment so I felt it was appropriate to stay away from the board. That deal is now dead as third parties shares have doubled and to my knowledge Fairfax was never contacted.

Cheers to all,

Dazel


petec

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Re: Fairfax2019
« Reply #113 on: December 24, 2019, 08:03:52 AM »
Thanks Dazel. I agree, FWIW.

Which do you think are the undervalued investments that will be monetised?
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Viking

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Re: Fairfax2019
« Reply #114 on: December 24, 2019, 10:47:49 AM »
When you look at Fairfax over the past year they have been very busy (and many of their equity holdings havealso been very busy). In aggreggate it is clear that the company is worth more today than it was 12 months ago. I think Faifax is better positioned today than at any time in the past 7-8 years to grow BV. As they continue to execute we will get growth in BV and a higher PE multiple which will be very nice for shareholders.

It is also interesting to look at Fairfax’s year end closing share price (from 2018 AR):
2014 = $608.78 CAD
2015 = $656.91
2016 = $648.50
2017 = $669.34
2018 = $600.98
2019 = $608.19 (Dec 24)

Cardboard

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Re: Fairfax2019
« Reply #115 on: December 25, 2019, 07:41:40 AM »
Thinking of a lucky 7? LOL!

abyli

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Re: Fairfax2019
« Reply #116 on: December 25, 2019, 08:10:16 AM »
Thinking of a lucky 7? LOL!

Wow! I am glad I sold 7 years ago....

investmd

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Re: Fairfax2019
« Reply #117 on: December 25, 2019, 05:43:02 PM »
When you look at Fairfax over the past year they have been very busy (and many of their equity holdings havealso been very busy). In aggreggate it is clear that the company is worth more today than it was 12 months ago. I think Faifax is better positioned today than at any time in the past 7-8 years to grow BV. As they continue to execute we will get growth in BV and a higher PE multiple which will be very nice for shareholders.

It is also interesting to look at Fairfax’s year end closing share price (from 2018 AR):
2014 = $608.78 CAD
2015 = $656.91
2016 = $648.50
2017 = $669.34
2018 = $600.98
2019 = $608.19 (Dec 24)

Thanks. The price history at close for past 5 years that you shared, suggests if one was holding since Dec 2014, annual return has been about 2%/yr (from dividends) in generally a bull market. Wow! Will take a substantial run up in price to justify for those of us who have held.

Viking

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Re: Fairfax2019
« Reply #118 on: December 26, 2019, 11:29:50 AM »
When you look at Fairfax over the past year they have been very busy (and many of their equity holdings havealso been very busy). In aggreggate it is clear that the company is worth more today than it was 12 months ago. I think Faifax is better positioned today than at any time in the past 7-8 years to grow BV. As they continue to execute we will get growth in BV and a higher PE multiple which will be very nice for shareholders.

It is also interesting to look at Fairfax’s year end closing share price (from 2018 AR):
2014 = $608.78 CAD
2015 = $656.91
2016 = $648.50
2017 = $669.34
2018 = $600.98
2019 = $608.19 (Dec 24)

Thanks. The price history at close for past 5 years that you shared, suggests if one was holding since Dec 2014, annual return has been about 2%/yr (from dividends) in generally a bull market. Wow! Will take a substantial run up in price to justify for those of us who have held.

Looking in the rear view mirror is important. Why has the stock price gone sideways for 5 years?
1.) what errors were made?
2.) has the company learned the lessons?

The much more important number for me is $608.19 (Dec 24 stock price).
3.) What will the company do moving forward?

The shares currently trade below book value (cheap compared to other insurance companies).
- Their insurance businesses are performing well and look to be in a hardening market; this is a big positive.
- their bond portfolio is positioned well (short end of curve) should rates continue to move higher
- their equity portfolio looks well positioned as we enter 2020 should we see economic growth continue to chug along

And sentiment towards the company is terrible.

This is not to suggest the company is perfect; it is not. I think the company has learned some valuable lessons. However, on balance, i like the decisions the company has made the past 2 years. More importantly, the company (and its equity holdings) is doing lots of things to drive shareholder value in 2020 and beyond. Q4 results should be solid. I like the risk reward at current prices.

racemize

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Re: Fairfax2019
« Reply #119 on: December 26, 2019, 12:52:56 PM »
When you look at Fairfax over the past year they have been very busy (and many of their equity holdings havealso been very busy). In aggreggate it is clear that the company is worth more today than it was 12 months ago. I think Faifax is better positioned today than at any time in the past 7-8 years to grow BV. As they continue to execute we will get growth in BV and a higher PE multiple which will be very nice for shareholders.

It is also interesting to look at Fairfax’s year end closing share price (from 2018 AR):
2014 = $608.78 CAD
2015 = $656.91
2016 = $648.50
2017 = $669.34
2018 = $600.98
2019 = $608.19 (Dec 24)

Thanks. The price history at close for past 5 years that you shared, suggests if one was holding since Dec 2014, annual return has been about 2%/yr (from dividends) in generally a bull market. Wow! Will take a substantial run up in price to justify for those of us who have held.

Looking in the rear view mirror is important. Why has the stock price gone sideways for 5 years?
1.) what errors were made?
2.) has the company learned the lessons?

The much more important number for me is $608.19 (Dec 24 stock price).
3.) What will the company do moving forward?

The shares currently trade below book value (cheap compared to other insurance companies).
- Their insurance businesses are performing well and look to be in a hardening market; this is a big positive.
- their bond portfolio is positioned well (short end of curve) should rates continue to move higher
- their equity portfolio looks well positioned as we enter 2020 should we see economic growth continue to chug along

And sentiment towards the company is terrible.

This is not to suggest the company is perfect; it is not. I think the company has learned some valuable lessons. However, on balance, i like the decisions the company has made the past 2 years. More importantly, the company (and its equity holdings) is doing lots of things to drive shareholder value in 2020 and beyond. Q4 results should be solid. I like the risk reward at current prices.

+1 to this post.

A couple of add-ons:
1) It is annoying that they have USD BVPS, but Canadian stock price, as it doesn't let you compare them that directly.  Anyway, 2014 was something like $530 USD share price, on a book value of 394.83, which is a P/B of 1.35 vs $460 USD/462 BVPS (unadjusted) of basically 1.  So value creation was more like 3.4%+2% div = 5.4% CAGR.  Obviously still not a great result, but that tells you more about how they did as a company than the stock price does.  I think Q4 will make this look a bit better too, with the recent sales, depending on cats.

2) Let's compare to Markel that has much better sentiment (although last year didn't help them much).  2014 YE bvps was 543.96, price was $687 (P/B was 1.26).  Current is BVPS of $768, and price of $1,123 (P/B of 1.46).  Value creation (again using BVPS) was 7.5% CAGR. 

So Fairfax underperformed Markel by 2.1% per annum on BVPS+div, even though the price change was quite a bit different. 

3) Continuing this Markel comparison, if you go back and look at combined ratios of the two companies, FFH is pretty close to Markel.
Markel Combined ratios, 2014 to current: 95%, 89%, 92%, 105%, 98%, 95%; average: 95.7%
FFH Combined ratios, 2014 to current: 90.8%, 89.9%, 92.5%, 106.6%, 97.3%, 97.1%, average: 95.7%

Thinking about the above, it seems quite clear to me that FFH is undervalued and/or MKL is overvalued.  I tend to think the former, but a mix is possible.
« Last Edit: December 26, 2019, 12:57:24 PM by racemize »