Fairfax Financial (TSX:FFH, Financial) is often compared to Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial), and indeed, there are many similarities between these conglomerates. The two corporations are primarily insurance groups and are headed by famous investors who have an excellent track record of capital allocation. Fairfax is managed by Canadian billionaire and businessman Prem Watsa (Trades, Portfolio), while Berkshire is managed by the Oracle of Omaha, Warren Buffett (Trades, Portfolio).
However, while Watsa and Buffett have some similarities in their investment and management styles, the companies are, in many ways, completely different businesses.
Two different businesses
Fairfax is predominantly an insurance group that reinvests its capital to generate higher returns. Meanwhile, Berkshire is more of an international conglomerate, which made its money in insurance and has now branched out into many different industries and sectors.
The largest holding in Fairfaxâs equity portfolio is the infrastructure giant Atlas (ATCO, Financial). Whatâs really interesting about this enterprise is that it is managed by David Sokol, who served as the CEO of the company that would eventually become Berkshire Hathaway Energy. He remained at Berkshire for several years and was long believed to be in line to become Buffettâs successor. However, the relationship between the two changed drastically in March 2011 when Sokol became embroiled in an insider trading scandal.
Over the past couple of years, Sokol has been focused on building Atlas into the best company it can be. This corporation is now at a turning point in its history as it capitalizes on the global supply chain crisis and surging demand for containerships.
There are two sides to Atlas. The division with the most potential is Seaspan, a leading independent charter owner and operator of containerships with industry-leading ship management services. Alongside this shipping group sits APR, which owns rapidly deployable, large-scale power and fast-track mobile power units. But itâs Seaspan thatâs expected to generate the real growth over the next few years.
Undervalued growth stock
Watsa outlined the companyâs growth plans in his 2021 letter to Fairfaxâs investors:
âSeaspan, the containership leasing company owned by Atlas, will grow by almost 1 million TEU to approximately 2 million TEU over the next several years, 73 vessels and close to $12 billion of gross contracted cash flow, primarily contributed by 70 new builds. Seaspan has already delivered three new build vessels ahead of schedule and expects all vessels to be in operation by year-end 2024 as scheduledâŚAtlas has forecast earnings per share to increase from $1.68 to $2.50 in 2024.â
Since this update, the company has also announced that it has entered into agreements with a major shipyard to construct four ultra-modern 7,700 TEU dual-fuel liquefied natural gas container ship newbuilds to be delivered in the third and fourth quarters of 2024. On completion, the vessels will enter into long-term charters and will contribute approximately $0.95 billion of gross contracted cash flow. Based on these projections, it appears as if the corporation has a guaranteed income stream for the next few years, which is a rare thing.
At the time of writing, Atlus' stock is trading with a market capitalization of $3.3 billion compared to its book value and shareholder equity of $3.6 billion as recorded at the end of the first quarter of 2022. Whatâs more, at the current share price of $13 per share, the stock is trading at around 5.4 times Watsaâs estimate of 2024 earnings, without including the contribution from the LNG transports outlined above.
