BNS Reaction 12:14 PM EDT, 06/20/2022 (MT Newswires) -- Fairfax Financial announced a transaction that Scotiabank believes further highlights the significant gap between its intrinsic value and current stock price. Fairfax is selling the pet insurance operations of its Crum & Forster segment and Pethealth Inc. for $1.4 billion. Over the years, Fairfax has made a number of acquisitions in the pet insurance space totalling an estimated ~$150 million including Pethealth Inc. in 2014. No specific deal metrics were provided, but Scotia estimates the sale represents a likely return on capital of roughly ~5.6x. The accounting for the deal likely has a number of moving parts, but analyst Phil Hardie believes the deal could result in a sizable pre-tax gain potentially as high as $1.1 billion or ~$35.50/sh after-tax and boost Fairfax's book value by an additional 5.5%.
Fairfax trades at a P/B multiple of less than 0.8x, and remains one of Scotia's top value plays.
Key points:
Fairfax announced the sale of Crum & Forster Pet Insurance Group and Pethealth Inc. to JAB Holding (JAB) for $1.4 billion with Fairfax receiving $1.15 billion in cash and $250 million in seller's notes. As part of the deal, Fairfax will invest $200 million in JAB's latest consumer fund, JCP V.
Management expects the transaction to close in H2/22.
Fairfax acquired Crum & Forster's Pet Insurance Group in 2013 under its previous name as Hartville Group and subsequently rebranded to Crum & Forster Pet in 2017. Meanwhile, Pethealth Inc. was acquired in 2014 for ~C$100 million in cash.
Crum & Forster Pet offers customized pet insurance plans to pet parents of cats and dogs. Pethealth Inc. offers pet services through two brands, 24Pet and VioVet, with the former being the expert in lost pet solutions, pet adoptions, animal welfare and shelter support while VioVet is a veterinary online retailer that is registered in UK.
Scotiabank has a Sector Outperform and $845 TP on Fairfax Financial.
Price: 645.00, Change: +11.40, Percent Change: +1.80