No. of Recommendations: 7
... should be announced on Thursday February 13 (previous year results were on Thursdays on the 15th, 16th, 10th, 11th and 12th of February).
The share price since Feb 13 last year is up from $972.79 to $1400 now, a gain of 44% in a few weeks less than a year. The price still seems reasonable to me, even after that gain. Book value a year ago (end of Q3) was $20.3b, or $822/share, and it's now $22.7b, or $997/share, so the P/B has moved from 1.18 to 1.40 now. It still trades at about 8 times earnings, up from about 5 times earnings last year. This compares favourably with other Canadian insurers, who are at earnings multiples of 12 (Definity), 14 (Sun Life), 15 (Trisura), 16 (Manulife) and 22 (Intact).
Everything seems to be working right now for Fairfax:
-the insurance companies with solid underwriting (combined ratio of 93.8% in the first 3 quarters, 94.2% last year);
-the big associate investments: Eurobank (a Greek bank), Poseidon (a transoceanic shipping firm), Digit Insurance (online insurance in India, IPO last year), and Fairfax India (a fund, more than half of whose holdings are it's 74% stake in the Bangalore airport), all doing well;
-the bond portfolio, which is generating a ton of income with an average 4-year duration, so net income should remain high for the next few years barring a big super-cat;
-equity sales: Stelco, a steel producer sold last year for a big profit, and Resolute, a pulp and paper producer sold in 2023 for a small profit after many years underwater;
-recent acquisitions (Sleep Country Canada, a mattress store) and Peak (mostly Bauer hockey equipment).
The big feature of Fairfax is that it has a huge insurance business with $35.1b in float (year end 2023), alongside its $22.7b in equity (as of Q3), providing for a ton of leverage. This compares to Berkshire's much bigger business but with much less leverage: $168.9b in float, for $631.8b in equity, so in Berkshire's case, every $1 in equity is invested alongside 29c of float, whereas in Fairfax's case, every $1 in equity is invested alongside $1.63 in float. Like Berkshire, Fairfax invests not only in fixed income investments (like most insurers) but also big concentrated stakes in associate non-insurance companies. These 2 factors (the leverage, and the exposure to equity stakes) probably explain the lower price, along with some bad bets 10 years ago that investors still remember (most notably, buying a big bet on Blackberry, and some terrible shorts of tech companies - both mistakes that Watsa has vowed not to repeat, but Mr Market is probably still mistrustful, and understandably so.)
This has been my biggest investment for many years, and has made up for a lot of other mistakes. I also own a (too) big stake in Fairfax India, which has not done so well, and which will be reporting on the same day as Fairfax.
dtb
No. of Recommendations: 4
and it's now $22.7b, or $997/share, so the P/B has moved from 1.18 to 1.40
Nice post and a good summary. I see the $22.72 Billion (USD) of common shareholders equity but I see a share count of 21.99 million common shares at 9/30/24 (likely lower today of course).
My adding machine spits out $1,033 USD per share for book value at the end of Q3.
For those not following the company as closely, it should be noted that Fairfax pays a dividend once a year and just sent us $15 per share a few days ago.
No. of Recommendations: 3
Yes, you are quite right, book value $1033 per share, as confirmed by the Q3 report, p.63:
Common shareholders’ equity at September 30, 2024 was $22,720.3 or $1,033.18 per basic share compared to $21,615.0 or $939.65 per basic share at December 31, 2023, representing an increase per basic share in the first nine months of 2024 of 10.0% (an increase of 11.7% adjusted for the $15.00 per common share dividend paid in the first quarter of 2024). During the first nine months of 2024 the number of common shares effectively outstanding decreased by 1,012,645, primarily as a result of purchases of 1,012,906 subordinate voting shares for cancellation. At September 30, 2024 there were 21,990,603 common shares effectively outstanding.
I can't remember how I did that erroneous calculation of BV/share but it was probably with an old share count. As you say, the share count is like to be lower now, and the book value higher, so maybe something like $1050 (given the $15 dividend paid out), so at today's price of $1376, the P/B would be 1.31 now, but we'll have a much more up to date number in a couple of weeks.
dtb
