After repeatedly telling investors that Fairfax Financial Holdings Ltd. shares are “ridiculously cheap,” founder Prem Watsa has committed US$149-million of his own money to buying additional shares in the insurance company.
Mr. Watsa, a veteran value investor and billionaire, more than doubled his holding of Fairfax subordinated voting stock by acquiring 482,600 shares in a series of purchases since last Wednesday. He now holds approximately 3 per cent of the company’s subordinated voting shares and continues to control Fairfax through his ownership of multiple voting stock.
The 69-year-old chief executives joins a long list of Canadian executives who raised stakes in their own companies after the market declined in March because of the economic impact of the global pandemic.
“At our annual meeting and on our first quarter earnings release call, I said that our shares are ridiculously cheap," Mr. Watsa said in a news release on Monday. “That statement reflected my recognition that in the 35 years since Fairfax began, I have never seen Fairfax shares sell at a bigger discount to their intrinsic value than they have recently.”
"I have now backed up my strong words by purchasing close to US$150-million of Fairfax shares in the market over the last few days, as I believe that this will be an excellent long term investment,” Mr. Watsa said.
Insider trading records show Mr. Watsa last made a significant Fairfax stock purchase in 2003, when the company’s share price declined during a campaign by short-sellers. Mr. Watsa earns US$600,000 annually as Fairfax’s CEO – a salary that has stayed the same for decades – and does not earn any stock-based compensation from the company. Other company executives do have equity-linked pay packages.
Fairfax’s share price fall sharply in March, along with almost every publicly traded company, and has gone sideways since then, during a broad-based equity market recovery. So far this year, Fairfax’s stock price is down by 30.9 per cent.
Mr. Watsa stepped up at a time when analysts agree Fairfax shares trade at a significant discount to their book value – which is unusual for the company – owing to investor concerns with the insurer’s ability to match historic levels of profitability during the global pandemic. For example, analysts at RBC Dominion Securities Inc. said in a report on Friday that Fairfax’s book value per share is currently US$422, while the stock closed Monday on the New York Stock Exchange at US$308.20.
“Our thesis is that Fairfax’s long-term track record of double-digit book value growth will continue and the current valuation provides an attractive risk-reward entry point for those willing to back the company’s long-term investment track record,” RBC Dominion Securities Mark Dwelle said in the report. “Fairfax has a deep cash position and ample access to capital, which gives it the flexibility to be opportunistic as well as patient.”
Fairfax is one of the world’s largest commercial and property and casualty insurers, and posted a US$1.26-billion loss in the first quarter of 2020 as the market decline forced the company to write down the value of its investments.
At the time, Mr. Watsa said, “Despite these unprecedented turbulent times our insurance companies continued to have strong underwriting performance in the first quarter.” In 2019, Fairfax made a US$2-billion annual profit and its book value per share was US$486-million at the end of the year.
North American stock markets hit record highs in February and, for the first two months of this year, corporate insiders were selling far more stock in their own companies than they were buying. In Canada, executives at companies in S&P/TSX 60 Index companies were selling 20 shares for every share they bought. After the market sold off in March, buying and selling were evenly matched.
At the end of March, analysts at Scotia Capital looked at insider buying and selling at 200 companies in the S&P/TSX Composite Index and said “after a prolonged buying strike, insiders have started nibbling at their own stock.” Scotia’s research shows increased insider buying matches up with cyclical lows in the benchmark stock index.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.
Andrew Willis