What is FFH.TO's Intrinsic value?

Fairfax Financial Holdings Ltd (FFH.TO) Intrinsic Value Analysis

Executive Summary

As of May 29, 2025, Fairfax Financial Holdings Ltd's estimated intrinsic value ranges from $2530.23 to $2716.63 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Multi-Stage) $2530.23 +7.6%
Dividend Discount Model (Stable) $2716.63 +15.6%

Is Fairfax Financial Holdings Ltd (FFH.TO) undervalued or overvalued?

With the current market price at $2350.61, the stock appears to be moderately undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Fairfax Financial Holdings Ltd's intrinsic value, including:

  1. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.2% 3.7%
Equity market risk premium 5.1% 6.1%
Adjusted beta 0.78 0.89
Cost of equity 7.1% 9.6%
Cost of debt 5.0% 5.0%
Tax rate 20.0% 23.1%
Debt/Equity ratio 0.32 0.32
After-tax WACC 6.4% 8.2%

Valuation Methods

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 21.1%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.4%
  • Long-term growth rate: 1.0%
  • Fair value: $2530.23 (7.6% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 9.6% (Low) to 7.1% (High)
  • Long-term growth rate: 0.5% (Low) to 1.5% (High)
  • Fair value range: $1,287 to $2,669
  • Selected fair value: $2716.63 (15.6% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $56955M
Enterprise Value $69370M
Trailing P/E 10.26
Forward P/E 10.39
Trailing EV/EBITDA 0.00
Current Dividend Yield 210.46%
Dividend Growth Rate (5Y) 16.33%
Debt-to-Equity Ratio 0.32

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Dividend Discount Model (Multi-Stage) 57% $506.05
Dividend Discount Model (Stable) 43% $407.49
Weighted Average 100% $2610.11

Investment Conclusion

Based on our comprehensive valuation analysis, Fairfax Financial Holdings Ltd's weighted average intrinsic value is $2610.11, which is approximately 11.0% above the current market price of $2350.61.

Key investment considerations:

  • Historical dividend growth of 16.33%

Given these factors, we believe Fairfax Financial Holdings Ltd is currently moderately undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.