Fairfax Monetary Holdings (TSX:FFH) is a Canadian holding firm primarily concerned within the insurance coverage business. It’s concerned in property and casualty insurance coverage, the identical sorts of insurance coverage that Berkshire Hathaway affords. For that reason, the corporate’s chief govt officer Prem Watsa has usually been referred to as “Canada’s Warren Buffett.”
Whether or not Watsa is a Buffett-calibre chief stays to be seen. He has definitely delivered his traders a market-beating return over the past 20 years, although current years have been weaker.
On this article, I’ll discover a number of the reason why Fairfax Monetary Holdings inventory is an underestimated gem.
What Fairfax does
Fairfax is a property and casualty insurance coverage firm. Because of this it insures properties and insures folks in opposition to hostile occasions. Amongst its subsidiaries are
- Alltrust, a Chinese language firm concerned in property and vitality insurance coverage;
- ARX, a Ukrainian life insurance coverage firm; and
- Pacific Insurance coverage, a normal insurance coverage firm that gives hearth, medical, accident, and different sorts of insurance coverage.
It’s a fairly numerous assortment of firms with various various kinds of insurance coverage. Notably, the corporate is concerned in each life insurance coverage and property/casualty insurance coverage. It is a good type of diversification as life and P&C have differing liquidity wants and thrive in several environments.
A legendary funding portfolio
One of many issues FFH inventory has going for it’s its high-quality funding portfolio. The corporate diligently invests in high-quality shares and has many well-regarded firms in its funding portfolio. These embody
- Alphabet — higher generally known as Google;
- Meta Platforms;
- Brookfield;
- Brookfield Asset Administration;
- Berkshire Hathaway;
- And extra.
These are all nicely regarded firms owned by clever folks like Warren Buffett, Charlie Munger, Li Lu, and Mohnish Pabrai. So, Fairfax’s portfolio appears like it’s a good one that ought to carry out nicely over time and contribute to traders’ outcomes.
FFH inventory: Efficiency
Having checked out Fairfax’s enterprise and investments, its time to show to its monetary efficiency.
In its most up-to-date quarter, FFH did
- $3.9 billion in income, up 68%;
- $1.25 billion in earnings, up 112%;
- A 32.31% revenue margin; and
- $1.9 billion in working earnings, up 89%.
It was a fairly good exhibiting. The long-term image has been fairly good as nicely. During the last 10 years, FFH inventory has grown its fundamentals on the following compound annual development charges:
- 13.26% in income
- 6.75% in working earnings
- 10.10% in web earnings
- 8.65% in diluted earnings per share
That’s fairly good development for a monetary inventory. And, FFH inventory has a modest valuation, buying and selling at
- 9.6 instances earnings;
- 0.6 instances gross sales; and
- 0.9 instances e-book worth.
It is a fairly low cost valuation for a inventory that has delivered a stable observe document over the past decade. Now, one factor to bear in mind is that Fairfax’s newer outcomes haven’t been nearly as good as its longer-term observe document. For instance, earnings development over the past 5 years has really been adverse. The corporate has, nevertheless, constantly grown on the highest line.
Administration has plenty of potential to ship actual worth to shareholders. Prem Watsa’s long-term observe document speaks for itself. Rising 1,000% over the past 20 years, FFH inventory has outperformed the TSX. Let’s hope there are extra good points available sooner or later.