TSX:FFH - Post Discussion
Post by
retiredcf on Feb 14, 2022 8:42am
RBC Upgrade
Their upside target is also raised to US$850.00. GLTA
February 11, 2022
Fairfax Financial Holdings Limited
Making all the right moves
Our view: Probably the best underwriting result we've seen in 20 years following the company. Strong growth in a hard market is true to its playbook and opportunistic. Investment portfolio positioning could also be a '22 tailwind. Add all that to a $1 billion buyback in the quarter and we see a management that is making all the right moves yet a share multiple that still greatly lags peers. We think there is significant room for multiple expansion and continue to view FFH shares as a best-in-class value opportunity at about 0.75x book value.
Key points:
Estimates/price target: We are increasing our 2022 net earnings per share estimate to $67.50 from $63.00. Results are positively impacted by a lower share count, a better combined ratio and rising premiums. These positives are partly offset by higher assumed minority interest (Odyssey is a very profitable unit) and modest adjustments to reserving and cat assumptions. Our 2023 estimate rises to $73.75 from $64.50 mostly as a result of reduced share count. On an operating basis we are similarly raising our estimate to $55.78 from $52.21 for 2022 and to $62.05 from $53.72 for 2023. 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 increasing our price target to $675 (about C$875, at 1.30 CAD/USD) from $600 which remains based on about a 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 and favorable reserve development in the middle of a hard market we think 1.0x book value is a very attractive multiple.
4Q results: Reported 4Q21 net earnings per share of $33.64 vs. $32.68 last year and our $14.15 estimate. Results include $938 million of net realized and unrealized gains on investments and $17 million related to the sale of a business unit. On an operating basis, which excludes these items, the company earned $5.13 per share (RBC forecast was $11.47). A sizeable asbestos charge, much higher corporate overhead and weaker ordinary investment income were the main reasons for the weaker-than-forecast operating result.
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