Another Miniature Berskire Hathaway

stock investingFairfax Financial Holdings (FFH.TO) is a Canadian financial holding company that operates in the property, casualty, and life insurance and reinsurance, investment management, and insurance claims management businesses. Although the company is based in Canada, the bulk of its operations take place in the United States.  United States businesses accounted for 49% of earned premiums, Canada  26%, and international markets for 25%. Fairfax Holdings has been in business since 1985.

Fairfax Financial: A Mini Berkshire Hathaway?

The company owns the following subsidiaries:

  • Northbridge Financial
  • Crum & Forster (C&F)
  • Zenith
  • First Capital
  • Falcon Insurance
  • Fairfax Brasil
  • OdysseyRe
  • GroupRe
  • Advent
  • Polish Re
  • The Resolution Group
  • Hamblin Watsa Investment Counsel
  • The Runoff Group

Fairfax corporate structure also includes a 26% interest in ICICI Lombard (an Indian property and casualty insurance company), a 40.5% interest in Falcon Thailand, a 22.7% interest in PTU S.A. (a Polish property and casualty insurance company), a 20% interest in Singapore Re, an approximate 20% interest in Arab Orient Insurance (a Jordanian company), an approximate 20% interest in Alliance Insurance (a Dubai, U. A. E. company), Cunningham Lindsey (43.6%) and Ridley (71.0%)

Fairfax Holdings Performance

Fairfax is a fairly diversified holding company with its primary interests lying in the insurance and reinsurance businesses. Fairfax is very similar to Berkshire in that its investment management team does an outstanding job of beating the returns of the market. Fairfax has outperformed the S&P500 by 10% per annum over the past 10 years. The company’s investments performed remarkably well during the financial crisis of 2008.

The company is in average  financial shape with over $1.5 billion dollars in cash and $2.7 billion dollars in debt. Fairfax has been able to increase book value over 26% annually for the past 25 years.  The stock has risen 21% annually over the past 25 years. That’s outstanding growth.

The stock looks like reasonably valued trading at 12 times this years earnings and at 0.9 times book value. The stock trades at 1.2 times sales. EPS has risen 54% over the past three years. Revenue numbers have been flat. The company has been hurt by higher net mark to market investment losses. The company made some bad bets in its bond portfolio. Fairfax took losses on its municipal bonds due to an increase in interest rates. Fairfax uses bonds to hedge its common stock portfolio.

Operating margins are solid at 15% and net margins are at 13%.  Return on equity is currently close to 12%.  Debt to equity is remarkably low at just 30%. The company has increased its annual dividend for 5 straight years with the current yield equating to 2.7%.

Based on the fundamentals of the company, the stock looks like a decent buy. I would feel comfortable initiating a position in the stock at its current level.

*This is a continuation of my stock investing series on stocks that mimic Warren Buffett’s Berkshire Hathaway.

Comments

  1. BLB – thanks for the welcome over at Yakezie! I think this is great – investing is surely my weak point, and that looks like your forte, glad to have dropped by your blog.

  2. avatar Evan says:

    If you bought a handful of these mini-BRKs you could have exposure to thousands of different underlying companies!

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