DCF Studio

    FFH.TO · TOR · Financial Services

    Fairfax Financial Holdings Limited

    Also onConsensus Drift

    Implied value per share

    CAD 15553.86

    Market price

    CAD 2244.95

    Implied upside

    +592.8%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case · USD model at 1.3982

    Wrong toolThis is a financial. Banks and insurers report no meaningful operating income, and capex and working capital do not mean what a free-cashflow model assumes, so a DCF will misprice it. The model below runs on best-effort numbers - treat it as an illustration, not a valuation.
    AdjustedReports in USD, trades in CAD. Modelled in USD, converted at the end.
    AdjustedConsensus rests on as few as 1 analyst estimate(s).
    NoteRisk-free rate is an assumption: CAD assumption - no free live source available for this market.

    Value Per Share

    Perpetuity growth
    CAD 15553.86+592.8%
    Exit multiple
    CAD 9157.53+307.9%
    Market price
    CAD 2244.95

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn10bn21bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 35.2bnUSD 40.8bnUSD 47.2bnUSD 54.7bnUSD 63.3bn+15.8%
    EBITUSD 7.9bnUSD 9.2bnUSD 10.6bnUSD 12.3bnUSD 14.2bn+15.8%
    NOPATUSD 6.3bnUSD 7.3bnUSD 8.5bnUSD 9.8bnUSD 11.4bn+15.8%
    Add depreciation & amortisationUSD 1.1bnUSD 1.3bnUSD 1.5bnUSD 1.7bnUSD 1.9bn+15.8%
    Less capital expenditureUSD -666.8mUSD -772.1mUSD -894.1mUSD -1.0bnUSD -1.2bn+15.8%
    Less increase in working capitalUSD 4.8bnUSD 5.6bnUSD 6.4bnUSD 7.5bnUSD 8.6bn-15.8%
    Free cashflow to firmUSD 11.5bnUSD 13.4bnUSD 15.5bnUSD 17.9bnUSD 20.8bn+15.8%
    Discount factor0.97030.91340.85990.80960.7622-
    Present valueUSD 11.2bnUSD 12.2bnUSD 13.3bnUSD 14.5bnUSD 15.8bn+9.0%
    Present Value Of The ForecastUSD 67.1bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate3.30%CAD assumption - no free live source available for this market (assumption)
    Equity risk premium5.50%Market assumption
    Beta0.619Reported 0.431, pulled toward 1.0 (Blume)
    Cost of equity6.70%Risk-free + beta x equity risk premium
    Cost of debt5.89%Interest expense / average total debt
    Market capitalisationUSD 46.6bn75.9% of capital
    Total debtUSD 14.8bn24.1% of capital, book value as a proxy
    Tax rate20.1%Effective, capped at statutory
    WACC6.22%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 11124.20

    74% of EV

    Forecast FCFF, final year
    USD 20.8bn
    Capex at depreciation, working capital in reinvestment
    USD 11.4bn
    Less reinvestment at g/ROIC (18.0% of NOPAT)
    USD -2.0bn
    Capitalised
    USD 9.3bn
    ROIC (reported)
    13.9%
    Terminal value, undiscounted
    USD 257.1bn
    Terminal value, discounted
    USD 196.0bn
    Enterprise value
    USD 263.1bn
    Less net debt
    USD 6.3bn
    Equity value
    USD 256.8bn

    Exit at 7.3x EBITDA

    Value per shareUSD 6549.51

    57% of EV

    Terminal value, undiscounted
    USD 118.6bn
    Terminal value, discounted
    USD 90.4bn
    Enterprise value
    USD 157.4bn
    Less net debt
    USD 6.3bn
    Equity value
    USD 151.2bn

    Spread between methods: 52%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    4.22%16407.1218878.8322777.7029856.1246723.50
    5.22%12250.6913339.3914822.9216967.8820350.57
    6.22%9841.9110408.7411124.2412057.6413329.04
    7.22%8265.128588.848978.379457.1010060.99
    8.22%7149.537344.717571.847840.098162.51

    Outlined: this model. Green text: above today's price of 1605.60. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year15.8%-14.9%-30.7pp
    EBIT margin22.5%1.3%-21.3pp
    Discount rate6.2%37.6%+31.3pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.