My clients and I have been owners of Berkshire Hathaway (BRK.A) (BRK.B) for several years. Berkshire is a solid, relatively unkempt, well managed, diversified and highly tax efficient facility. These factors make it easy for me to own some of it, even though future returns are not expected to be more than 10% annualized.
In this post I will go through a conservative evaluation of the different parts of Berkshire. In a later post I will examine the value gain over time and give some more thoughts on Berkshire's current appeal.
Evaluation – some overarching thoughts
I would like to share my assumptions in advance. Berkshire is a big project, and to the extent that people tend to disagree, I sometimes think, because the assumptions about what is being done are very different. If you disagree with the results, it makes sense to use these assumptions.
First and foremost, I try to look at the values of each individual company on the basis of cash flows . I will not use any industry comps. I will not add up any assets. I will examine the cash flow and try to discount those cash flows at a reasonable interest rate to determine a value for the company.
Second, I rate each of these companies assuming that all excess cash flows are paid out. In reality, the success of Berkshire or another company largely depends on how management uses future profits. For this contribution, I will ignore this by saying that all revenue is disbursed as a dividend, which is no benefit (or harm) to future good (or bad) capital allocation decisions. I will discuss my thoughts on whether the future capital allocation in the next post is likely to do any harm or help.
Third, I use a 10% discount rate for Berkshire. If I can earn 10% after taxes with all the benefits Berkshire offers, I am happy. Of course, you can adjust the numbers with your own discount rate.
Valuation – Operational Business
I find it easiest to consider these companies as four separate entities – Equity Investors, Burlington Northern Santa Fe, Berkshire Hathaway Energy and Manufacturing, Service and Retail. The accounting and economic considerations are quite different for each of them, so it makes sense for me to rate them separately.
Equity Method Investments
This is the smallest of the buckets and consists of Kraft Heinz, Berkadia, Pilot Flying J and Electric Transmission Texas. I will include Kraft Heinz in the equity portfolio so I will only include the other companies for this segment. From p. For K-80s in the 10K countries, we see these companies generating $ 563 million for Berkshire. We have no further information about them, so I'll simply add a 15-fold multiple of profits and say, these companies are worth about $ 8.4 billion.
Berkshire Hathaway Energy
Berkshire Hathaway Energy is made up mainly of a number of major utilities in the United States. BHE is 90.9% owned by Berkshire and generated US $ 2.60 billion in 2018 with $ 29.59 billion in equity. There are several ways to rate this, but I use a simple one. Utilities can usually earn 10% of their equity after taxes, and if you go through old financials, you'll find that Berkshire tends to earn ROE of ~ 10%. Since I use a discount rate of 10% and Berkshire earns 10% ROE, I rate BHE directly at book value. Berkshire's 90.9% interest in carrying amounts of $ 29.59 billion [$ 269 billion] is .
BHE also has a fairly large real estate brokerage that earns $ 200 million before taxes. I'll multiply that by a factor of ten and say it's worth $ 2 billion .
Technically, we would have to deduct the equity of the brokerage from the consolidated BHE equity to adjust downwards the book value and the valuation of the utility. I do not know the equity of the real estate industry, but I think it is quite small, as it is not capital intensive and certainly not relevant to the whole company.
Burlington Northern Santa Fe
For BNSF or any other capital As an intense business, I first look at the return on investment to find an estimate of the company's earning power based on the company's capital. Many of these companies actually have relatively stable capital returns. So if you know the amount of capital, you can estimate the average returns. Here are the figures for the invested capital (TCE), the operating result (OI) and the return on capital employed (ROITC) for the BNSF since 2010:
** Note on the invested capital: I use total assets – goodwill and intangible assets – current liabilities. Another view is that net working capital + long-term tangible assets. In particular for the BNSF there was a PP & E increase at the time of the takeover by Berkshire. I estimate it at ~ 12.7 billion dollars; It also looks as though this PP & E appreciation will not be amortized (based on annual depreciation as a percentage of net PP & E relative to other railways). Since this PP & E level is an accounting rather than an economic convention, I deduct $ 12.7 billion for each year since the acquisition.
The first thing that jumps out of this chart is that ROITC is pretty pretty stable. If I told you that the BNSF will invest $ 100 billion in capital in 2030, you would be pretty confident that it will probably make $ 14-16 billion in OI. This relatively stable relationship means we can estimate the OI for any given TCE level.
End of 2018, the BNSF US $ 53.9 billion in TCE. To determine its earning power, I simply multiply that $ 53.9 billion with its average ROITC of 14.9% since 2010. We estimated the OI at $ 8 billion.
The next question is, how much is that worth? First, it makes sense to match the OI to the actual revenue:
I found interest expense by taking the current debt of the BNSF of $ 23.2 billion and multiplying it by the mixed rate of 4.5%, he pays for his debts. I used a tax rate of 18%. This is lower than the rate of 21% you would expect and what they indicate in the profit and loss account as railway companies benefit from accelerated depreciation of their PP & E for tax matters. The effects of this can be found under "Deferred taxes" on the cash flow statement for all major railways. As long as the railways continue to invest investments above their depreciation costs, these taxes will be permanently deferred.
Next, I'll allocate $ 5.7 billion of revenue to free cash flow so we can rate it appropriately. Because we expect a constant ROITC on average, future revenue growth must be funded by a proportionate increase in the asset base. If the BNSF increases its returns by about 4% next year, we would expect the capital base to increase by the same 4%.
Although this exact relationship is unlikely to persist from year to year, given the capital intensity of the business and historically stable ROITC, we would expect this relationship to last for many years. I assume that the BNSF will be able to increase its profits by 4% on an annualized basis in the next business cycle and that, to enjoy this growth, it will increase its capital base by the same 4% per year.
We can use this general approach 4% number to determine the expected amount of free cash flow conversion. In order to achieve a 4% gain next year, the asset base must be increased by $ 53.9 billion, or 4%, or $ 2.16 billion. However, we do not have to deduct the full $ 2.16 billion in revenue to maintain free cash flow as the BNSF will fund part of that expansion through debt.
By the end of 2018, the BNSF still had debts of $ 23.2 billion (43)% of its assets of $ 53.9 billion. I assume the BNSF is holding the leverage ratio at 43%, which means that it only needs to fund 57% of the $ 2.1 billion expansion of the asset base with retained earnings. As a result, $ 1,227 million of retained earnings and $ 929 million of additional debt will be funded.
We are now deducting $ 1.277 billion of the equity-funded portion from $ 5.711 billion to determine a $ 4.448 billion FCF. Since we discount at 10% and assume 4% growth, we need a 6% FCF return to determine the fair value. That brings us to a value of $ 74.7 billion .
I tried to be fair but conservative with this estimate. Many investors will rightly point out that Union Pacific (UNP), the BNSF's closest partner, currently has a market capitalization of $ 120 billion. UP has ~ 10% more OI, so it is estimated that the BNSF is worth at least $ 100 billion.
This is not a contribution to railways, so I think this part is short and sweet. First, I think UP is overrated, plain and simple. I think the market underestimates UP's long-term capital needs and may also be over optimistic about long-term volume growth and margins. Secondly, last year I had the opportunity to talk to BNSF's Chief Financial Officer in Omaha, and she said bluntly that you should not expect BNSF's profit margins to increase to UP levels because of rail networks and freight (like many Investors expect) Mix is different.
All in all, I think it's possible that ROITC for BNSF (and other rails) will rise in the future. There is an argument that the recent years have been unusually investment intensive due to positive train control and some other factors. If you think that my assessments have an advantage, you would increase BNSF use. If you perform the same exercise but use a 17% ROITC, the BNSF would be worth $ 90.5 billion. Personally, I'm reluctant to assume a much better ROITC than 10 years of history have shown, but I'd like to prove wrong.
Manufacturing, Service, and Retail
This segment includes all other operating businesses that Berkshire owns. These include Precision Castparts, Lubrizol, Iscar, Marmon, Duracell and many others. For those who track the segments over time, it should be noted that this year, Berkshire merged financial and financial products into production, service and retail.
These companies achieve excellent overall returns on invested capital and are likely to grow at a rate similar to GDP. I prefer to look at them based on the free cash flow return. I expect that cycle returns are likely to increase by about 4%. Therefore, I calculate the fair value with a return of 6% (which corresponds to our discount rate of 10%).
These companies raised a total of $ 12.3 billion before taxes in 2018, which would be slightly above $ 9.7 billion after tax, assuming a rate of 21%. In order to determine the free cash flow, we have to deduct the investment from the depreciation and working capital needs. On page K-107 of the 2018 10-K you can see the investment and depreciation figures for all major business units:
This segment includes manufacturing, McLane, and service and retail. As a first round, we can see that these companies invested $ 1.77 billion in depreciation expense in 2018. It would be tempting to deduct these only from our net result. If you look at the figures for 2017, you can see that depreciation only increases by $ 928 million. Therefore, it makes sense to use a number between these two values.
It's hard to say what a normalized capex number could be without the consolidated balance sheet. Although not much is known about the combined balance sheets, in 2016 we received the balance sheet for the combined manufacturing, service, and retail segments:
If you add everything together, you have $ 39.6 billion in cash material capital (assuming that the operation actually requires only $ 2 billion and net working capital + fixed assets + other assets). This figure is divided into 50 / 50 between net working capital and fixed assets. As financial and financial products were also included in this segment in 2018, we would also have to increase the capital employed. Unfortunately, there is no way to figure that number, but I estimate it's about $ 5 billion. In total, we employed approximately $ 45 billion in tangible capital by the end of 2016.
Back to investment figures, we can conclude that these companies have increased their fixed assets by about 4% (net 928 million dollars) Capex / net PP & E value of 18.9 billion USD in MSR and slightly more for financials) in 2017 and possibly 7-8% in 2018 after the same adjustment has been made to the finance and financial products business.
In the two years Since we know a part of the numbers, the investment base has increased by 10-15%. We estimated that at that time a capital of 45 billion US dollars was used, so 50 to 55 billion US dollars. It seems reasonable to assume that it is still about half of net working capital and half of long-term assets.
If we return to our income and growth numbers, we would have $ 50-55 billion on a capital base of ~ $ 9.7 billion in revenue, and a decent long-term growth forecast could be around 4%. Using the same general approach as for BNSF, we would say that these companies need to increase their capital base by ~ 4% on average to reach 4% growth, which adds up to around $ 2 billion. About half of this goes to investments made through the depreciation allowance, half of which comes from an increase in net working capital. I would like to emphasize that this is a guess because we do not have much data.
As these companies carry debts, I will also say that part of this asset growth is financed by debt. I will say that these companies have a free cash flow earning power of about $ 8 billion, assuming they are growing over time time by 4%. With a FCF return of 6%, this results in a segment value of $ 133.3 billion .
You could say that this is a fairly low number for a segment that earns $ 9.7 billion – equivalent to 13.7x TTM earnings. Feel free to assign a higher number if you like, but I think in general it's important to keep in mind that this group only has a ROITC of ~ 20-25% – that's good, not great – and it has also very low debt, which means that you get much less free cash flow into equity than if you had better return on your investment or a little more leverage.
Adding It All
If we repay the numbers, we have $ 8.4 billion for the equity method investment, $ 26.9 billion for the utility, $ 2 billion for the real estate brokerage business, 74 , $ 7 billion for the BNSF, and $ 133.3 billion for the manufacturing, services, and retail sectors, representing a total value of of $ 245.4 billion.
Rating – Insurance Segment
This section reflects what I did in a previous post about Markel. In this post I said that you have three main values for an insurance company: the underwriting result, the interest income of the fixed income portfolio and the value of stocks or other production values. We will discuss each bucket for Berkshire in turn.
What is Berkshire's bad debt?
This, in my opinion, is one of the most important questions when it comes to the evaluation of Berkshire. The question arises from the nature of the balance sheet of an insurer. Insurers have three sources of finance for the balance sheet – float, debt and equity. They typically invest the money from these three sources into a mix of fixed income securities and equities or other equity-type investments (hedge funds, real estate partnerships, etc.).
A simplified summary of a typical insurance company might look like this:
If you value this hypothetical company, leaving the underwriting profit or loss aside, you would probably count the shares at fair value and then add the net interest income. If the fixed income portfolio had earned 3% after tax and the LT debt cost 4% after tax, you would have net interest income of $ 3.5, so the total value of the investments may be $ 20 + $ 3.5 * 10 = $ 55.
The problem arises when you switch between fixed income and investments. Let's assume that the company has bought a number of shares and now has fixed income assets valued at $ 100 and stocks worth $ 50. If you re-enter the numbers, you have an investment result of $ 2.6, so your fair value is $ 50 + $ 2.6 * 10 = $ 76.
Did the value of this company increase 38% overnight, as this example shows? Probably not. If this math is isolated then why not invest all assets in stocks? Then your value would be $ 146.
The problem with this kind of analysis is that you effectively ignore the impact of insurance obligations. For a well-managed insurance company like Berkshire, you do not have large capital requirements for these insurance liabilities, but you probably do not want to invest all that money in stocks. No matter how good you are in stock selection, there is always the risk that you will lose a large portion of your portfolio. Buffett talks about surviving the 1,000-year storm. If your stock portfolio loses 75% of its value and you have funded it with equity, you will survive. If you have funded insurance liabilities, you probably do so in one way or another.
To find out how to accurately assess the assets in an insurer's balance sheet, I like to look back on how the company looks historically took stock and how these investments were funded. I use this information to see what the company might reasonably expect to invest in equities (or other productive assets), and which portion is likely to remain invested in fixed income assets that are valued at a multiple of the interest earned.
In my Markel position, I showed a graph of stocks as a percentage of the company's physical book value. We have seen that the company is investing the TBV well in equities. I said TBV was valued at 100 cents against the dollar and I assumed that all other assets (ie debt and insurance liabilities) were invested in fixed income.
Here is an overview of some of the 1998 Berkshire relevant finance and investment figures:
Here are the definitions for each column:
- Float: Total amount of insurance liabilities
- Fixed Income: Total amount of cash holdings, fixed income and T-bills in the insurance industry and others Segments
- Preferred: Total amount of preference shares held by Berkshire
- Cash in "Other": Cash held by the operating companies held under the "Other Segment". Estimates: 2017 and 2018 because Berkshire ceases to report this exact figure
- Fixed Income / Float: (Fixed Income + Preferred – Cash in "Other") / Float
What are we looking at here? Markel post, I had shares in percent of the TBV. Their reporting made it relatively easy to find that number. The way in which Berkshire reports makes it hard to find these numbers, so this graph shows exactly the same metric but only the other way around: Instead of looking at stocks as a percentage of TBV, we can use fixed income as Look at the percentage of the float. If fixed income securities always account for 100% of the free float, we know that stocks account for 100% of TBV (plus debt, but Berkshire has low debt, so it's not that important). If fixed income securities are less than float, shares account for more than 100% of TBV and vice versa.
What does this diagram show? Basically, the amount of liquid securities and fixed income securities (from now on I refer to the sum of liquid assets and fixed income securities held in the insurance segment of Berkshire) compares this to the amount of the float. If the fixed income is exactly the float, the value in the right column would be 100%. If the fixed income securities were below the float, suggesting that Berkshire used part of its float to invest in equities, the value in the right column would be less than 100%.
The conclusion is that Berkshire has done so over the past 20 years. Typically, it has invested all its shares in cash, bonds and preferred stock. When people say that Berkshire uses insurance liabilities to invest in equities, this is generally not true. They invest the insurance liabilities more or less in fixed income instruments and their retained profits in stocks.
What does that mean for our rating? If Berkshire invests most or all of the float in equities, you could rightly say that you should value the float-funded portion of your investment at 100 cents of the dollar. Since this is not the case and this money is usually invested in fixed income securities, the value that a Shareholder derives therefrom consists of the present value of the interest income from these fixed income securities. That's how I'll appreciate it.
Three Buckets of Insurance Value
As I mentioned earlier, the three value creation areas for each insurance company are revenue, interest from fixed-term securities, and excess cash and productive investment. I will rate them one after another.
I do the insurance business in Geico and others. I do this because Geico's performance was so strong that grouping with the other segments would underestimate its value.
Geico has probably been one of the most powerful companies in the world in recent decades. If it were public, his stock would have been a home run. Premiums earned increased from $ 10.1 billion in 2005 to $ 34.1 billion in 2018, representing a CAGR of 9.8%. During this time, Geico has made a profit for up to one year and has achieved an average overall ratio (1 – operating profit margin) of 94.1%.
I estimate Geico by taking $ 34.1 billion in TTM premiums and multiplying it by 5% profit margin (relatively conservative relative to 94.1% CR in the past), with a tax rate of 21% is deducted and this income is awarded a 25-fold multiple. The value of is $ 33.7 billion.
Some may think that a 25-fold multiple is far too high, but with a long history of 10% organic premium growth and a high and consistent profitability over this period, it is obvious. Revenues from underwriting are very valuable.
For the other segment, which consists of a large number of insurance and reinsurance businesses, I tend to judge things on average in a few years. These operations can and must have lumpy results, so it does not make sense to use the results of a single year. The premiums written in the past five years averaged $ 22.8 billion. This average grew by about 1% CAGR compared to the previous five-year average, so we should not expect too much from this segment.
Over the past 15 years, this segment has been subscribed with a combined ratio of 95.4%. To evaluate this, I multiply the average of the $ 22.8 billion 5-year premiums with a 4% profit margin and a 21% tax rate, adding an 11-fold multiple, which is worth of 7.2 billion US dollars. I use the 11x multiple, assuming organic premium growth of 1% (found earlier), we need a ~ 9% FCF return to reduce our interest rate to 10%.
Our value for each underwriting result adds up to [$19459006] $ 40.9 billion.
Investment income from fixed-term investments
Here we use information about the fully indebted balance sheet. By the end of 2018, Berkshire had assets of $ 123 billion. If we continue what I said earlier, we would expect Berkshire to still have fixed maturities of $ 123 billion with a fully indebted balance sheet. So we would take $ 123 billion and multiply with the interest rate that Berkshire would be earning over time.
I will go back a bit what I wrote earlier. A little bit! It seems to me that although Berkshire has not invested the insurance obligations in productive assets, Buffett may be more willing to do so. Berkshire has grown so big and there's so much additional capital that I think it's a little less risky to put some of the stock into stocks or companies. For this reason, I now assume that Berkshire will hold a fixed income of at least 80% of the float. Everything else, what I estimate as excess liquidity and a value of 100 cents of the dollar.
Applying this to our current numbers, we have 80% of $ 123 billion that Buffett believes I will hold in fixed-term securities. Since Buffett is so conservative in terms of maturity and credit quality, I use 2.5% after tax for an expected interest rate on these investments. That brings us $ 2.5 billion in interest after tax annually. I expect a return of 7% to find a fair value as the growth rates of Geico and Other would result in an annual float growth of around 3%. This gives us a $ 34.4 billion in investment income from the fixed-term securities.
Der letzte Eimer betrifft die Investitionen, die wirklich über dem Versicherungsbedarf liegen und eingesetzt werden können in produktive Vermögenswerte. Da ich 80% festverzinsliche Wertpapiere als Prozentsatz des Float-Anteils verwendet habe, steht fest, dass alle anderen finanziellen Vermögenswerte zum vollen Wert gezählt werden sollten.
Hier ist die konsolidierte Bilanz von 2018, die Ihnen hilft zu sehen, was ich hier mache:
Die einzige Korrektur, die ich mache, betrifft Bargeld, das für das Betriebskapital der verschiedenen operativen Tochtergesellschaften benötigt wird. Ich gehe davon aus, dass alle Operationen nur 5 Milliarden US-Dollar benötigen, um zu laufen, also nehme ich Gesamtkapital und nehme dann 5 Milliarden US-Dollar für das Betriebskapital ab.
Wenn Sie "Zahlungsmittel und Zahlungsmitteläquivalente" zusammenfassen, "kurzfristige Investitionen" In US-Schatzwechseln, "Anlagen in Wertpapiere mit fester Laufzeit" und "Barmitteln und Zahlungsmitteläquivalenten" des Segments Railroad, Utilities und Energy erhalten Sie 131,7 Mrd. USD. Ziehen Sie 5 Mrd. USD für das Betriebskapital ab und Sie erhalten 126,7 Mrd. USD. Da wir sagten, dass wir 80% des Floats benötigen, um in festen Laufzeiten zu bleiben, bedeutet dies, dass die Differenz zwischen 126,7 Mrd. USD und 80% * 123 Mrd. USD wirklich übertrieben ist. Das bedeutet, dass 28,3 Milliarden US-Dollar überschüssige Barmittel sind, die ich auf 100 Cents des Dollars einschätze.
Der letzte Schritt ist die Bewertung der Beteiligungspapiere. Ich mache das, indem ich die Anzahl der Aktien der größten Beteiligungen (Apple, Bank of America, Wells Fargo, Coca-Cola, American Express und Kraft Heinz) nachverfolgte und dann davon ausging, dass der Rest des Portfolios dem S & P 500 gut tut.
Während ich dies schreibe, um die Aktien von Berkshire am 31.12. Bis heute nach vorne zu ziehen und die heutigen Kurse zu verwenden, dürfte das Aktienportfolio von Berkshire einen Wert von ~ 201 Milliarden US-Dollar haben. Dies ist ein Anstieg von 187 Milliarden US-Dollar (Kraft Heinz ist in diesem Eimer enthalten, obwohl in der Bilanz nach der Equity-Methode bilanziert wird) Ende 2018.
Ich möchte einige Anpassungen vornehmen diese Zahl (oder haben Sie das zu diesem Zeitpunkt schon erraten?).
Erstens gehe ich ziemlich davon aus, dass Berkshire seine Aktienanlagen auf unbestimmte Zeit halten wird, sodass der Barwert dieser Aktien vollständig von den Dividenden stammt. Da Berkshire diese Dividenden besteuert, ist es meiner Meinung nach sinnvoll, den Wert dieser Steuern abzuziehen. Buffett erwähnte im Brief von 2018, dass Berkshire auf Dividenden aus seinen Aktien im Versicherungssegment ~ 13% besteuert (Separate Anmerkung: Dies erscheint mir viel zu hoch, nur weil sie einen Abzug von 70% und ihren Steuersatz erhalten sollten.) ist 21%. Kennt jemand den Grund, warum er 13% statt ~ 6% zahlen würde?), so reduziere ich den Wert dieser Aktien um die gleichen 13%. Kraft Heinz ist nicht versichert, und Berkshire ist auf diese Dividenden nur zu ca. 4,2% besteuert (80% Abzug auf einen Steuersatz von 21%). Daher sollten Sie nur 4,2% dieses Wertes einnehmen. Nach Abzug von 13% vom Wert der Aktien im Versicherungssegment und 4,2% von Kraft Heinz erhalten Sie einen Wert für das Aktienportfolio von 176 Milliarden US-Dollar.
Zweitens liebe ich es nicht, jede Aktienbeteiligung blind zu markieren seinen Marktwert. Wenn einige Betriebe teuer aussehen, dann sagen Sie tatsächlich, dass sie diesen teuren Preis wert sind. Ich nehme alle großen Positionen mit Ausnahme von AmEx (Apple, Bank of America, Wells Fargo, Coke und Kraft Heinz) an und bewerte sie mit dem niedrigeren Marktwert oder einem Preis, zu dem ich konservativ denke, dass ich ihn kaufen muss 10% im Laufe der Zeit machen. Ich schließe AmEx aus, weil ich dazu nicht viel zu sagen habe und die Aktie billig erscheint. Für den Rest der Aktien bewerte ich sie per Stellvertreter als den S & P 500, wie ich bereits zuvor erwähnte.
Sie können Ihre eigenen Werte für die Aktien auftreiben, aber ich schätze Apple mit einem 10-fachen abschließenden Gewinn ohne Cash (142,51 $). BAC und WFC bei 1,8x TBVPS (32,24 $ bzw. 57,35 $), Coke bei 20x meiner Schätzung der Einnahmen des Eigentümers (37,50 $) und Kraft Heinz bei einem Free Cashflow von 8% (36,85 $). Ich versuche hier konservative Werte zu verwenden, wie Sie wahrscheinlich sagen können. Das Herabsetzen der Werte mag ein bisschen dumm erscheinen, aber es hilft in Situationen wie wenn KHC bei 90 $ gehandelt wird und es ist ziemlich eindeutig nicht mehr als 50 $ wert. Wenn Sie es als etwas Konservatives bezeichnen, wird Ihre Bewertung von Berkshire nicht einem manchmal schaumigen Markt zugerechnet.
Ich schätze den S & P 500 mit dem 2,5-fachen Buchwert, der auf 843,58 USD des Buchwerts 2,109 ausmacht. Ich könnte einen ganzen Artikel darüber schreiben, aber es genügt zu sagen, dass ich einen Abzinsungssatz von 10% verwende, und Aktien dürften von hier aus im Lauf der Zeit keine 10% vom aktuellen Wert abwerfen.
Verwenden des niedrigeren geschätzten Werts ( Für Apple, Coke und den Markt) und den Marktwert (für Kraft Heinz, Wells Fargo und Bank of America) erhalte ich einen Gesamtwert von 175 Milliarden Dollar. Nachdem ich jede Zahl mit ihrem Steuersatz multipliziert habe, wie in dem vorherigen Abschnitt, erhielt ich einen Gesamtwert von 153 Milliarden Dollar .
Adding It All Up
Zurückgehen through the numbers, we have $40.9 billion for the underwriting income, $34.4 billion for the investment income, $28.3 billion in excess cash, and $153 billion for the equity portfolio, which adds up to a total value of $256.6 billion.Consolidated Valuation
Now we just need to add everything up. We had a value of $245.4 billion for the operating companies and $256.6 billion on the insurance side.
The last piece is that Berkshire does have some liabilities at the parent level. It has $16.9 billion of debt, which incurs $367 million of annual interest expense. It also has a notional liability of $2.5 billion on its derivative bets (although that number is likely lower marked to market as of today compared to the relative lows at the end of 2018). If we capitalize the interest expense we get a value of $2.9 billion and after adding the derivative liabilities we get a total value of -$5.4 billion.
To sum up, we have $245.4 billion + $256.6 billion – $5.4 billion for a total value of $496.6 billion. There are 2.46 billion class b shares outstanding, so that translates to a total value per share of $202.
I have tried to go through each business and value it based on the underlying cash flows that it is likely to produce. I tried to use conservative, although not overly harsh estimates and think through situations where conventional valuation wisdom might overlook important variables.
The biggest valuation gaps between what I've done and what others tend to do generally exist for two reasons. First, I do not believe that most of the investments on Berkshire's balance sheet should be carried at 100 cents on the dollar. Second, the operating businesses that Berkshire owns are good on aggregate, they are not exactly great. If you're assuming growth, which I think is a fair assumption, you need to account for the working capital and capex needed to fund that growth.
Stepping back a bit, you have a large conglomerate with a diverse stream of cash flows and lots of net cash on the balance sheet that looks conservatively priced to make 10% or so annually. That looks pretty attractive given the risk profile.
That is quite enough for now. I'll have a follow-up at some point that looks at actual intrinsic value growth over time, some thoughts on future capital allocation, and using Berkshire as your opportunity cost.
Disclosure: I am/we are long BRK.B. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Disclosure: Pursuant to the provisions of Rule 206(4)-1 of the Investment Advisors Act of 1940, we advise all readers to recognize that they should not assume that recommendations made in the future will be profitable or will equal the performance of past recommendations. This publication is not a solicitation to buy or offer to sell any of the securities listed or reviewed herein. This contents of this publication are not recommendations to buy or sell any of the securities listed or reviewed herein. Investing involves risk, including risk of loss. The contents of this publication have been compiled from original and published sources believed to be reliable, but are not guaranteed as to accuracy or completeness. Kyler Hasson is an investment advisor and portfolio manager at Delta Investment Management, a registered investment advisor. The views expressed in this publication are those of Kyler Hasson and not of Delta Investment Management. Kyler Hasson and/or clients of Delta Investment Management and individuals associated with Delta Investment Management may have positions in and may from time to time make purchases or sales of securities mentioned herein.