On Sept 22 Fairfax Financial announced a 10% share buyback. Details here. As most of you know, in previous posts I’ve discussed why Fairfax is a great undervalued business. Currently the shares are trading at about 1.05 times Q2 2011 ending book valued of $358. If business for Fairfax just stays flat then the buyback plus the current dividend of about 2.7% would potentially generate a 12.7% return over the next year. Not too shabby in the current environment.
When they report Q3 2011 results next month I think there are good odds that the book value of the business will increase quarter over quarter. Catastrophe losses in the insurance business should be returning back to more normal levels, maybe they’ll even generate an underwriting profit. On the investment side, almost their entire stock portfolio is hedged and their large bond portfolio is going to get some nice mark to market bumps. The only negative could be continued losses on their deflation bet. While inflation seems to be moderating it is still not even close to deflation so I expect continued losses on those hedges.
All in all the shares of Fairfax are still a great buy and the management of Fairfax agrees and has just but a nice chunk of their money where their mouth is.