10:59 AM EDT, 10/27/2022 (MT Newswires) -- National Bank of Canada noted on Thursday Indian news outlets are speculating that Fairfax Financial Holdings Ltd. (FFH.TO) plans to sell its 54% stake in Bangalore International Airport Ltd for at least $1.5 billion, fetching a $2.5-$3 billion valuation for the entire company.
The bank said Fairfax Financial's stake is measured at carrying value of $540.1 million as of June 30, 2022. This implies pre-tax gains of about $1 billion, or about $800 million after-tax (assuming a 20% tax rate).
The bank said this would add about four percentage points of Return on Equity and book value per share accretion to its 2023 estimates. As a result, its 2023 book value per share, excluding accumulated other comprehensive income, would increase from $819.75 to $853.92, the bank said.
It added that this reinforces its view that Fairfax can deliver after-tax ROE of about 13% in 2023. The market is currently pricing Fairfax as a 7% ROE business, or at 0.81x Price-to-Book multiple, the bank noted.
National Bank said Fairfax remains the best value idea in its coverage universe. It noted that the stock is still trading below book value at about 0.8x. It said Fairfax can deliver sustainable long-run ROE of at least 10% through a combination of consistently strong underwriting growth/profits and improving total investment return performance.
National Bank reiterated its Outperform rating on Fairfax Financial with a target price of C$1,100.00.