01:22 PM EST, 01/14/2025 (MT Newswires) -- Fairfax Financial ( FRFHF ) is one of National Bank's top ideas in 2025.

Analyst Jaeme Gloyn expects i) consistently strong results, ii) deployment of excess capital to drive ROE accretion, and iii) ongoing valuation re-rate, for the company. At the end of December, Fairfax deployed ~US$800 million in excess capital to drive ~50 basis points of ROE accretion. Gloyn believes these transactions are either under-the-radar or underappreciated.

On Dec. 13, Fairfax said it acquired the remaining 13.8% minority interest in Brit from OMERS for US$383 million, implying a ~US$2,775 million valuation. Brit delivered profit of $629 million in 2023 and ~$600 million in profit in the first half of 2024, annualized. "Therefore, adding 13.8% of ~$600 mln in Brit profit, or $83 mln of income would drive ~25-30bps of ROE accretion in 2025 (assuming that $383 could have been invested in bonds at 4-5% yields)," Gloyn calculates.

Fairfax share repurchases will also drive ROE accretion in 2025.

National Bank believes Fairfax continues to hold well over US$2 billion in deployable capital. The company can repurchase more common shares and/or repurchase minority interests in other Fairfax insurance companies. Fairfax can still purchase ~US$1.5 billion of interest held in Allied World and Odyssey, which National previously estimated could drive another 100 bps of ROE accretion.

Fairfax is rated Outperform, with a $2400 target.

Price: 1968.47, Change: +32.97, Percent Change: +1.70