TSX:FFH - Post Discussion
Post by
retiredcf on Nov 07, 2022 10:00am
RBC 2
Their upside scenario target is US$975.00. GLTA
November 4, 2022
Fairfax Financial Holdings Limited
Strong underwriting, improving investing returns drive solid 3Q results
Our view: Core underwriting margins continue to improve and investment income is steadily rising as cash is deployed. Associate and non-insurance operations are also improving contributing additional operating income. Fairfax is delivering good results in all areas of the business and is in a very strong financial position. We think this has been an overlooked story and while the business remains complex, at 85% of book value it is trading at such a significant discount to peers it deserves a fresh look. We remain at Outperform.
Key points:
Adjusting estimates: We are raising our 2022 net income estimate to $21.50 from $(23.61) which reflects the results in the quarter, higher operating income and a $42 realized gain on the sale of the Pet business. We’ve raised our 2023 estimate to $95.75 from $78.75 reflecting higher investment income and moderately better underwriting margins associated with still strong underwriting conditions. We initiate a 2024 estimate of $100.00. On an operating basis we are raising our estimate to $68.91 from $49.04 for 2022 reflecting the upside in the quarter, better underwriting margins and higher associate and investment income. Our 2023 estimate rises to $82.33 from $65.43 reflecting similar factors, and we initiate a 2024 operating EPS estimate of $86.58.
Price target: Our target remains $700 (about C$950 at a 1.35:1 exchange rate). This remains based on approximately 1.0x book value which we apply to ending 2023 book.
3Q results: Reported 3Q22 net loss per share of $3.65 vs. earnings of $16.44 last year and our $(11.79) estimate. On an operating basis, the company earned $14.92 per share (RBC forecast was $2.97). Results reflect better than forecast underwriting income as well as upsides in investment income, profit from associates and non-insurance company income.
Items of note: It was another strong quarter for premium growth with the company’s largest units. Odyssey was particularly impressive up 27%. The overall combined ratio amounted to 100.3% vs. 101.1% which beat our 101.6% forecast. Total cat losses were $803 million or 15 combined ratio points. The company closed its sale of Crum’s pet insurance business in October which will result in a $992 million after tax gain in 4Q (we’ve included this in our estimates since it is known). Buybacks in the quarter totaled about 209,000 shares (about $110 million).
Positives: 1) Excellent underlying combined ratio fo 86.2%; 2) Strong premium growth; 3) rising investment income.
Negatives: 1) Higher than expected cat losses; 2) loss on acquisition of Allied World shares; 3) adverse portfolio marks impact book value.
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