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Fairfax Financial Holdings Ltd T.FFH

Alternate Symbol(s):  FRFHF | T.FFH.PR.C | FXFLF | FRFZF | T.FFH.PR.D | FRFGF | T.FFH.PR.E | FXFHF | T.FFH.PR.F | FAXRF | T.FFH.PR.G | FAXXF | T.FFH.PR.H | FRFXF | T.FFH.PR.I | T.FFH.PR.J | T.FFH.PR.K | FRFFF | T.FFH.PR.M | FFHPF

Fairfax Financial Holdings Limited is a Canada-based holding company. The Company, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and the associated investment management. The Company’s segments include Property and Casualty Insurance and Reinsurance, Life insurance and Run-off and Non-insurance companies. The Property and Casualty Insurance and Reinsurance segment includes North American Insurers, Global Insurers and Reinsurers and International Insurers and Reinsurers. The Life Insurance and Run-off segment include Eurolife and Run-off. The Non-insurance companies segment includes restaurants and retail, Fairfax India, Thomas Cook India and others. Eurolife underwrites traditional life insurance policies (endowments, deferred annuities, whole life and term life), group benefits, including retirement benefits, and accident and health insurance policies. The North American Insurers include Northbridge, Crum & Forster and Zenith National.


TSX:FFH - Post by User

Post by retiredcfon Nov 26, 2021 1:07pm
533 Views
Post# 34169749

RBC

RBCCurrent and upside scenario targets are US$600 and US$750. And the cut and paste was a nightmare. GLTA

Fairfax Financial Holdings Limited

Strong top-line and book value growth, remains an outstanding value

Our View: Accident year margins continued to improve and growth was impressive across all units. Debt/Cap ratios have dropped with the completion of several transactions which positions the company to be more opportunistic in both growth and buyback decisions. The Digit transaction remains pending which will provide a further book value boost when closed. We  think there is significant room for multiple expansion and continue to view FFH shares as an outstanding value opportunity at about 0.75x book value. 

Key points:

Estimates/price target: We’re increasing our 2021 EPS estimate to $102.75 from $94.60 which primarily reflects the investment upside in the quarter. On an operating basis we are lowering our estimate to $23.00 from $27.90 which reflects the $5 shortfall in the quarter. For 2022 we’re increasing our estimate to $63.00 from $58.00 which reflects better growth and slightly better margins based on 2021 accident year results and continued pricing strength. Our 2023 estimate is similarly increased to $64.50 from $60.00. Our estimates do not include Go-Digit which would become consolidated once necessary approvals are achieved (a modest positive to '22 and beyond).

Price target: We are maintaining our $600 price target (about C$750) which remains based on about 1.0x multiple which we apply to estimated ending 2022 book value. With good visibility to further book value growth together with a company generating underwriting profits, favorable reserve development in the middle of a hard market we think 1.0x book value is still a very attractive multiple.

3Q Results
Reported 2Q21 net earnings per share of $16.44 vs. $4.44 lasty ear and our $8.41 estimate. Results included $375 million of net realized and unrealized gains on investments. On an operating basis, which excludes these items, the company earned $0.72 per share (RBC forecast was $5.73).  Catastrophe losses of $605 million were well above the $275 million we modelled though the difference was partially offset by higher associate and affiliate income.

Items of Note: 

 

Management continues to anticipate receiving necessary

approvals to complete the Digit transactions announced in July and

estimates a $37/share benefit to book value when complete. The

completion of the Eurolife purchase, Brit sale and Riverstone Barbados

sale prompted the repayment of credit lines which reduced the debt/

capital ratio to about 25.7% which is in line with peers. About 72% of the

approximately $700 million of Covid-19 reserves taken to date remain in

IBNR.

Positives: 1) new business; 2) improved AY combined ratio; 3) reduced debt/cap ratio 
following completed transactions.
page1image665864288

Negatives: 1) Much higher-than-expected catastrophe losses; 2) continued investment income pressure.

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