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Fairfax Financial Holdings Limited Message Board

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  • philtmcnasty8 philtmcnasty8 Sep 12, 2008 2:58 PM Flag

    Investment Thesis for FFH

    I don't have indepth knowledge of insurance business so will not comment on the nitty gritty but leave that to management and the analysts. I do have a set of pros and cons for FFH investment and for my money the pros outweigh the cons.

    Cons:

    Insurance business is currently experiencing a soft market which will mean lower underwriting profits near term.

    Hurricane season is so far worse this year than the last couple of years with the potential for extraordinary losses.

    Recent bottom fishing by investment division has proved premature as many of the investments have dropped significantly in value since they were purchased (Canwest, Abitibi, Mega Brands, Pfizer).

    Pros:

    FFH has a long record of growing book value and management has a target of 15% growth going forward which is less than historical average.

    The shares currently trade at a discount to BV - something normally reserved for underperforming companies or ones with liquidity issues - not the case with FFH.

    The company is in the enviable position of having a strong balance sheet, solid debt rating and cash available to invest at a time when both equity and debt financing are difficult to come by and many businesses are on sale.

    Soft insurance markets inevitably lead to hard markets and Fairfax's disciplined underwriting approach should serve it well in limiting losses in the mean time.

    Top dog Prem Watsa has a significant portion of his personal wealth tied up in the company and takes a modest salary as CEO - something that gives me some comfort that his interests are aligned with that of other shareholders.

    If (a big IF)they can achieve their stated target of 15% growth in BV, BV should be worth over $500 by 2012. If the shares still only trade at BV it would still be a good return with the current price at $215. With a premium to BV this could be a 3 or 4 bagger in five years.

    Even if they fall short of targeted growth, I believe there is still a good margin of safety at this price.

    But that's just my opinion, I could be wrong.

 
FRFHF.PK
454.998+0.500(+0.11%)Oct 30 2:40 PMEDT