Jump to content

Fairfax 2018


wondering

Recommended Posts

  • 2 weeks later...
  • Replies 501
  • Created
  • Last Reply

Top Posters In This Topic

Thank you also.

 

The report illustrates very well the valuation challenge (based on closely following the company for over twenty years) associated with a tendency for uncorrelated and lumpy results.

 

Often the earning power appears to be underestimated by the market and looking for reversion to the mean (like now) but somehow, to jump in, one has to agree with or have full confidence in their "seer" capability, a topic that has been discussed in another FFH thread (Ericopoly and others) before.

Link to comment
Share on other sites

  • 3 weeks later...

Interesting article about the excess capital in the reinsurance industry.

 

"We find an asymmetric risk / reward as we move through 2018 windstorm season. We calculate ~$60bn of excess capital in the industry. We believe this surplus capital could result in limited pricing improvement even with a material loss; much like the pricing reaction to 2017 losses. We expect SCOR's shares to be most exposed should a hurricane emerge, given highest disclosed sensitivities and most risk to its buy-back."

 

https://ftalphaville.ft.com/2018/09/11/1536679537000/When-the-wind-blows-your-money-away/

Link to comment
Share on other sites

Thank you wondering. That was useful.

 

Here's a recent AMBest report that offers complementary info on different topics including the impact of the ILS market.

http://www3.ambest.com/bestweek/DisplayBinary.aspx?TY=P&record_code=277679&URatingId=2855493

 

-most relevant pages of the document (3-9 and 34-39).

 

As you likely know, Markel has been expanding in a big way into the ILS space whereas Fairfax hasn't.

 

The cat-bond space appears to be a huge success, seemingly may have made the underwriting cycle irrelevant and people involved with transactions are getting comfortable, as most participants no longer require an independent rating agency opinion.

 

However, in 2017, from adequate sources, the average coupon on the bonds is about 5% and average expected loss stands at 2,7%.

 

Seems like an awfully thin margin but, so far, so good.

 

Link to comment
Share on other sites

  • 2 weeks later...

https://www.fairfaxindia.ca/news/press-releases/press-release-details/2018/Fairfax-India-Announces-an-Agreement-With-Sanmar-Chemicals-Group/default.aspx

 

As a result of this agreed transaction and positive operational developments at Sanmar, in the third quarter of 2018 Fairfax India will record investment gains of approximately $252 million (INR 18.3 billion), comprised of approximately $190 million (INR 13.8 billion) from common shares and approximately $62 million (INR 4.5 billion) from bonds, an increase in book value per share of approximately $1.62.

Link to comment
Share on other sites

Thanks for sharing.

 

Per 2018Q2 earnings PR,

"At June 30, 2018 common shareholders' equity was $2,056.2 million, or $13.26 per share"

 

So adding $1.62 to this would give $14.88, close to the current stock price.  The INR currrency dropped by 5% since June 30, but since with the successful investments in Sanmar and Bangalore airport, i think I can have some confidence in the Indian team's ability to allocate capital.

 

For this, I just initiated a long position.

Link to comment
Share on other sites

https://finance.yahoo.com/news/intention-normal-course-issuer-bid-113000070.html

 

Under its existing normal course issuer bid, Fairfax has purchased 700,539 of its Subordinate Voting Shares, which included Subordinate Voting Shares reserved for share-based payment awards, through open market purchases on the TSX during the last twelve months at a weighted average price per share of Cdn.$667.29. Fairfax has not purchased any Preferred Shares under its existing normal course issuer bid. (Fairfax has spent  $467,462,669.31 on share repurchases in the last year)

 

 

 

 

Link to comment
Share on other sites

 

 

Excellent buy back prices!

 

While many do not pay attention to buy backs it is the secret math to a high share

Price over the longer term. Fairfax has reached critical mass....and I believe will follow Singleton’s Teledyne model as long as we are cheap.

Link to comment
Share on other sites

https://finance.yahoo.com/news/intention-normal-course-issuer-bid-113000070.html

 

Under its existing normal course issuer bid, Fairfax has purchased 700,539 of its Subordinate Voting Shares, which included Subordinate Voting Shares reserved for share-based payment awards, through open market purchases on the TSX during the last twelve months at a weighted average price per share of Cdn.$667.29. Fairfax has not purchased any Preferred Shares under its existing normal course issuer bid. (Fairfax has spent  $467,462,669.31 on share repurchases in the last year)

 

I can't see that many share purchases on Sedi.ca.  How else can FFH repurchase without reporting them on Sedi.ca ?  Or am I not seeing them for a different reason?

Link to comment
Share on other sites

  • 2 weeks later...

I am dying to find out if they got more aggressive in buying back their stock during this selloff.  Earlier today, I just bought a large slug of stock at usd$501.  (I couldn't help myself)  I am very very pleased they repurchased close to half a billion in stock in the last year.  I definitely was not expecting that!!!

 

 

 

Excellent buy back prices!

 

While many do not pay attention to buy backs it is the secret math to a high share

Price over the longer term. Fairfax has reached critical mass....and I believe will follow Singleton’s Teledyne model as long as we are cheap.

Link to comment
Share on other sites

 

 

Buy every share you can Prem.

Every last one!

 

 

Yes, I wonder how ffh views the current market.  Their own shares look quite cheap, but I wonder whether they will find something else that's been beaten up even more.  In any case, US$500m would buy back a considerable chunk of outstanding shares if the price would remain low enough for long enough.

 

 

SJ

Link to comment
Share on other sites

I really like how businesses within the Fairfax umbrella are working together to reduce costs across their businesses.  These investments are non material to Fairfax but it's great to see collaboration!

 

https://www.theglobeandmail.com/business/article-fairfax-merging-sporting-life-and-golf-town-but-stores-will-still/

 

"The Toronto-based company says the two sporting goods retailers will operate separately with their own branding and management teams, but will make joint investments in technology, staffing and their supply chains."

Link to comment
Share on other sites

At this time next year, it's a pretty low bar for Fairfax to be generating $1+B in cash on its investment portfolio per annum.

 

Very conservative assumptions of 2-3% on fixed income and 3-4% on equities gets you there. Barring a recession, Fairfax is going to roll it's bonds at higher yields and be pulling in something like $400M just in coupon income as long as the Fed keeps hiking rates.

 

10-12x investment earnings without considering insurance at all is pretty attractive. I would love to see another $500M in repurchases this year.

 

Link to comment
Share on other sites

 

 

Buy every share you can Prem.

Every last one!

 

 

Yes, I wonder how ffh views the current market.  Their own shares look quite cheap, but I wonder whether they will find something else that's been beaten up even more.  In any case, US$500m would buy back a considerable chunk of outstanding shares if the price would remain low enough for long enough.

 

 

SJ

 

The two aren’t mutually exclusive. Buybacks ought to be from earnings, not float. Float can be put to work.

Link to comment
Share on other sites

 

 

Buy every share you can Prem.

Every last one!

 

 

Yes, I wonder how ffh views the current market.  Their own shares look quite cheap, but I wonder whether they will find something else that's been beaten up even more.  In any case, US$500m would buy back a considerable chunk of outstanding shares if the price would remain low enough for long enough.

 

 

SJ

 

The two aren’t mutually exclusive. Buybacks ought to be from earnings, not float. Float can be put to work.

 

 

Most certainly they are not mutually exclusive.  However, the decision of whether to buy back shares or acquire a new sub that might have been unfairly beaten up by the market over the past month is largely a question of current cash balances at the holdco level as well as subsidiary dividend capacity and the ability of the holdco to potentially borrow more.

 

From my perspective, the holdco had somewhere between US$500m and US$1b of excess cash available at the end of Q2.  Some of that might notionally have been earmarked to buyback minority positions, but that might have changed with the drawdown in markets.  So, does FFH throw, say, US$750m of holdco cash at buybacks, or is there a new great sub out there somewhere that's been getting killed due to the market drawdown and the silly panic about the hurricanes which have already hit?  Do they juice the divvies from the subs to enable either a larger buyback or an opportunistic acquisition?  Or do they hold the line and just continue the Brit/Allied purchases?

 

The question of what to do with float is a bit of a different question.  My sense is that barring a drastic repricing of equities, FFH will likely hold the line on their strategy of holding short term fixed income.  That current strategy provides an obvious operating income win over the next year or two while not overcommitting to an equity market which is still historically expensive.

 

But, I guess time will tell.

 

 

SJ

 

 

Link to comment
Share on other sites

Ah - I misunderstood. I thought you meant buybacks vs. buying equities, not buybacks vs. buying a new sub. My gut says no new subs - they’ve said they have the footprint they want and as you say they have minorities to buy in.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now



×
×
  • Create New...