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
