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For the first time, long $BRK.
I have a lot of ?s about the capital allocation, and am not enamored with some of the businesses... but I believe it will grow intrinsic value/share at high single digits and the discount vs. IV is too big.
Back of the envelope valuation below...
I have a lot of ?s about the capital allocation, and am not enamored with some of the businesses... but I believe it will grow intrinsic value/share at high single digits and the discount vs. IV is too big.
Back of the envelope valuation below...
(1) Equity Book (per 13F)
Market value is $211bn
Cost is $137bn
Tax Rate of 21%
After-tax value is $195bn
Market value is $211bn
Cost is $137bn
Tax Rate of 21%
After-tax value is $195bn
(2) Railroad
2019 earnings = 5.5bn
Multiple of 20x = $110bn of equity vlaue
UNP trades at 19.7x 2019 earnings
S&P Railroad Index trades at 20.8x 2019 earnings
2019 earnings = 5.5bn
Multiple of 20x = $110bn of equity vlaue
UNP trades at 19.7x 2019 earnings
S&P Railroad Index trades at 20.8x 2019 earnings
(3) Utilities and Energy
2019 earnings = 2.85bn
Multiple of 18x = $51bn of equity value
S&P Utilities Index trades at 17.7x 2019 earnings
BHE is putting more capital to work, and that justifies a higher multiple (thus, conservative)
2019 earnings = 2.85bn
Multiple of 18x = $51bn of equity value
S&P Utilities Index trades at 17.7x 2019 earnings
BHE is putting more capital to work, and that justifies a higher multiple (thus, conservative)
(4) MSR
2019 earnings = 9.5bn
Multiple of 14x = $133bn
I really don't like these businesses, but they are mostly stable and GDPish growers
2019 earnings = 9.5bn
Multiple of 14x = $133bn
I really don't like these businesses, but they are mostly stable and GDPish growers
(5) GEICO
2019 premiums written = 36bn
LT operating margin = 5%
Tax rate = 21%
Run-rate earnings = 1.4bn
Multiple of 15x earnings = $21bn
PGR trades for 15x 2019 earnings
2019 premiums written = 36bn
LT operating margin = 5%
Tax rate = 21%
Run-rate earnings = 1.4bn
Multiple of 15x earnings = $21bn
PGR trades for 15x 2019 earnings
(6) Other Insurance
2019 premiums written = $25bn
LT operating margin = 3.5%
Tax rate = 21%
Run-rate earnings = .7bn
Multiple of 10x earnings = $7bn
*Admittedly, valuing the underwriting profit is difficult, but $28bn seem fair for the entire entity
2019 premiums written = $25bn
LT operating margin = 3.5%
Tax rate = 21%
Run-rate earnings = .7bn
Multiple of 10x earnings = $7bn
*Admittedly, valuing the underwriting profit is difficult, but $28bn seem fair for the entire entity
(7) Float // Cash + STI
Float = $130bn
Insurance Cash & Non-equity investments = $151bn
I'll value the float as a liability at 60% of book
Thus, 151 - (130 * .6) = $73bn of net equity value
(see 2014 letter for discussion of how to value float - https://www.berkshirehathaway.com/2014ar/2014ar.pdf)
Float = $130bn
Insurance Cash & Non-equity investments = $151bn
I'll value the float as a liability at 60% of book
Thus, 151 - (130 * .6) = $73bn of net equity value
(see 2014 letter for discussion of how to value float - https://www.berkshirehathaway.com/2014ar/2014ar.pdf)
Sum-of-the-parts: $590bn
- Equities = $195bn
- Railroad = $110bn
- Energy = $51bn
- MSR = $133bn
- Insurance Underwriting = $28bn
- Cash & FI less Adj. Float = $73bn
Market cap = $430bn
- Equities = $195bn
- Railroad = $110bn
- Energy = $51bn
- MSR = $133bn
- Insurance Underwriting = $28bn
- Cash & FI less Adj. Float = $73bn
Market cap = $430bn
