Opinions
Michael Sprung
Fairfax Financial
FFH-T
COMMENT
Jul 15, 2016
Stock price when the opinion was issued
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Everyone was shorting it in the 2000s, and now it's one of the most favoured stocks on the TSX. Up 13% YTD. He owns it in TFSAs. Helped by global acquisitions. Combined ratio ~94%. Underwriting has improved, costs kept in line. Almost every operation it has is showing profitability.
Estimated PE for this year is about 10x, normal for insurance industry. Has hit a high, but it's one you want to own for the long term. He continues to buy for clients.
Premium contentFFH will keep chugging along under fine management, improving combined ratios and pure momentum. Bay Street is flashing buy signals and an 11% price target to $2,600. The main drawback with Fairfax is its share price, currently above $2,300. Don't expect a stock split anytime soon. However, if your pockets are deep and your horizon is long, then FFH is right for you.
A bit of a black box. Stock price has done very well the last few years, after having gone nowhere before that. Insurance at the core, and Prem Watsa's done a great job allocating those premiums. Higher rates favours insurers, lower rates the opposite, and he has no control over what the future holds.
If you own it, hold. You may want to investigate succession plans.
He admires Prem Watsa and the company he has built. Extremely well-run, but it is an insurance business, particularly in property and casualty. A highly, highly variable business. Sometimes the combined ratios are in your favour and you make a lot of money, and sometimes the premium intake doesn’t cover the expenses. This company has always relied on its investment acumen. People taking a longer term point of view stands a better chance of making money, but shouldn’t expect a smooth ride given the nature of the businesses that it is in. This doesn’t look like an unreasonable place to position yourself, but you have to be willing to be a long-term player.