Fairfax Financial Holdings Ltd T.FFH

CIBC Notes

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FFH | Profit-taking Seems Unlikely On The Basis Of Relative Value

Event: We are revisiting Fairfax’s valuation in the context of an exceptional run-up in the shares on a YTD basis.
 

Our Take: Fairfax shares have advanced 43% YTD making it the best-performing financial services name in Canada by a fairly wide margin. We would attribute the

strong relative performance to a variety of factors including (but not limited to): 1) demonstrating consistently positive underwriting margins; 2) a sizeable step-up in

run-rate dividend and interest income (owing partly to higher market yields but also a rotation of the investment portfolio from cash to fixed income); and 3) a de-

risking of portfolios which benefits the P&C insurers as investors rotate away from credit-sensitive names and into more defensive names like the P&C insurers.

Despite the strong run, we note that Fairfax still trades towards the bottom end of the peer group range on the basis of P/B and P/E. In this context, we see little

incentive for profit-taking on the basis of relative value, and continue to promote shares of Fairfax as a higher-conviction Outperformer-rated name.

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As is often the case, when inexperienced retail investors panic at what is going on in the markets, they promptly sell their best stocks instead of their worst. GLTA

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 And on a day like today; they kick themselves. Focus on the fundamentals and ignore the noise (although these past few months have been tough). GLTA