Berkshire Hathaway

Berkshire Hathaway misses earnings estimates for second quarter 2015 but homes in on Precision Castparts

buffett

Plenty of news around Warren Buffet and Berkshire Hathaway right now - earnings, the potential acquisition of Precision Castparts for around $30 billion (Buffett's biggest ever deal) and then the activist investor ValueAct buying into Amex, one of Berkshire's biggest holdings.

Warren Buffett's Berkshire Hathaway Inc. posted a 10% decline in second-quarter earnings, due to a sharp drop in its insurance business. The shares dropped around 1% to $141.60 (b shares), compared with a 52 week high of $152 in late 2014. The price of Berkshire's Class A stock hit an all-time high of $229,374 on December 8th 2014. The company is currently trading on a p/e of 19 on current years estimates of earnings, not cheap! Berkshire has a market cap of $354 billion with its biggest deal of 2015 the Heinz-Kraft merger. 

On Friday it was announced that ValueAct, a San Francisco-based hedge fund, has invested $1bn for a stake of a little more than 1 per cent in Amex and is considering ways in which it might pressure the company to improve revenue growth. Amex has had a tough year, losing the Costco partnership and facing litigation for its charging structure.

Berkshire Hathaway B shares 2014-2015

Berkshire Hathaway B shares 2014-2015

In March Buffett announced that his company H.J. Heinz Co would do a deal with Brazilian private equity firm 3G Capital to merge with Kraft Foods Group Inc in a $46 billion deal to create the third-largest North American food company. The deal was funded with the help of a $10 billion special dividend  funded by an equity investment by Berkshire Hathaway and 3G (Heinz shareholders own 51 percent of the combined company and Kraft shareholders the rest). 

This deal followed the $4.6 billion acquisition of the Duracell battery business from P&G in November 2014.

precision castparts

Yesterday the Wall Street Journal reported another potential deal for Buffett, saying Berkshire is close to a deal to buy Precision Castparts Corp which would be Buffett's largest takeover ever. Given typical premiums, the price tag for the industrial company, which had a market value of $26.7 billion as of Friday’s close, could exceed $30 billion.

Precision Castparts 2014-2015

Precision Castparts 2014-2015

Berkshire is one of Precision Castparts’ largest shareholders, with a 3% stake as of March 30th. Founded in 1949, the Portland, Ore. company makes components such as fasteners and turbine blades for aircraft companies including Airbus Group SE and Boeing Co. It also makes equipment for power stations and the oil-and-gas industry. The company generates around half its annual sales of $10 billion from big aircraft and engine makers.Over the last five years, the company’s shares have underperformed the S&P 500 by nearly 30%,

On Friday it was announced that Berkshire Hathaway's book value, rose 2.4% to $149,735 per Class A share for the first six months of the year. Meanwhile, Berkshire's "float," rose to about $85.1 billion as of June 30th 2015.

Berkshire's insurance underwriting business, which includes Geico Corp., posted a $38 million loss compared with a profit of $411 million after-tax profit in the same period in 2014.

In the latest period, Berkshire reported a net $123 million gain from investments, down from $2.06 billion in the year-ago period. The company reported a profit of $4.01 billion, or $2,442 Class A share, compared with $6.4 billion, or $3,889 a share, a year earlier. Operating profit, which excludes some investment results, fell to $3.89 billion, or $2,367 a share, from $4.33 billion, or $2,634 a share. Forecasts were for operating earnings of $3,038 a share.

Net income in the second quarter of 2015 fell 37 per cent to $4bn. In the same period last year, it recorded $2.4bn in investment gains, but the equivalent figure this year was only $362m.The company also reported a $411m underwriting loss at its reinsurance arm, in part due to storms in Australia and foreign exchange fluctuations.

 

Buffett’s Berkshire Hathaway lags US indices yet again in 2013 but it was one hell of a year!

Berkshire Hathaway's (BRK) book value per share, Warren Buffett’s preferred measure of valuation, increased 18.2% in 2013 or $34.2 billion, a superb return in most years but still 14.2 points behind the 32.4% total return delivered by the S&P 500.
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Buffett diagnosed with early stage Prostate cancer

The following announcement was released by Berkshire Hathaway yesterday, putting Warren Buffett's age of 81 years into focus and how long it is realistic for him to continue as Chief Executive. At least Buffett is being wholly transparent unlike Steve Jobs who tried to conceal his cancer, which ultimately killed him, for some time.

FOR IMMEDIATE RELEASE April 17, 2012

Omaha, NE (BRK.A; BRK.B) –

To the Shareholders of Berkshire Hathaway:

This is to let you know that I have been diagnosed with stage I prostate cancer. The good news is that I’ve been told by my doctors that my condition is not remotely life threatening or even debilitating in any meaningful way. I received my diagnosis last Wednesday. I then had a CAT scan and a bone scan on Thursday, followed by an MRI today. These tests showed no incidence of cancer elsewhere in my body.

My doctors and I have decided on a two-month treatment of daily radiation to begin in mid-July. This regimen will restrict my travel during that period, but will not otherwise change my daily routine.

I feel great – as if I were in my normal excellent health – and my energy level is 100 percent. I discovered the cancer because my PSA level (an indicator my doctors had regularly checked for many years) recently jumped beyond its normal elevation and a biopsy seemed warranted.

I will let shareholders know immediately should my health situation change. Eventually, of course, it will; but I believe that day is a long way off.

Warren E. Buffett

Buffett, buying stocks when they're cheap and book value

I have been reading a super book written by Mary Buffett and David Clark which has recently been published called "The Warren Buffett stock portfolio - Warren Buffett stock picks: why and when he is investing in them".

I thought the first page of the introduction of the book quoting from Buffett in 1991 was something that many private investors should take note of, " nevertheless, fears of a Californian real estate disaster similar to that experienced in New England caused the price of Wells Fargo stock to fall almost 50 percent within a few months during 1990. Even though we had bought some shares at the prevailing price before the fall, we welcomed the decline because it allowed us to pick up more shares at the new panic prices. "' "Investors who expect to be ongoing buyers of investments throughout their lifetimes should adopt a similar attitude towards market fluctuations; instead many illogically become euphoric when prices rise and unhappy when they fall. Warren has always maintained that the time to buy stocks is when nobody else wants them."

The concept of book value is a metric much used by Buffett and critical in exploring the difference between a share price, market capitalisation and a realistic valuation.

1) Equity value is calculated by subtracting a company's liabilities from its assets.

2) Book value is the equity value divided by the number of shares in issue. Book value is the per share equity value of a company. Tangible book value excludes intangibles such as goodwill.

3) For example (simplistically):

Xcite energy

Assets (excluding intangibles on the balance sheet, around £88 million from memory)

116 million barrels of oil. Assume each barrel valued at $10. Assume a 75 percent chance of recovery= £1.16 billion (£0.7 billion)

Liabilities
$350 million to develop Bentley field in total phase 1a, 1b and 2

Equity value

$1.16 billion - $350 million = $0.81 billion = £506 million

Total shares in issue = 241,244,031

Book value = 506/245 = 206p

Current share price = 117p

Mary Buffett and David Clark interview by Frank Curzio

I was catching up on some of the S&A radio podcasts with small cap specialist Frank Curzio that I hadn't listened to, and wanted to recommend to readers a podcast from December 21st 2011, Episode 110, available from Itunes, http://itunes.apple.com/gb/podcast/s-investor-radio-w-frank-curzio/id341813080

There is an excellent interview featuring Mary Buffett (ex-wife of Warren Bufett's son Peter) and David Clark. The have released a book called "The Warren Buffett Stock Portfolio: Warren Buffett Stock Picks: Why and When He is Investing in Them". Between them its a fascinating qualitative and quantitative look at how Berkshire Hathaway choose their stocks. I'm not sure if the book is any good since I've only just ordered it.

Buffett's latest shareholder letter

Some useful information and insights from Warren buffett's latest Berkshire Hathaway newsletter:

http://www.berkshirehathaway.com/letters/2011ltr.pdf

Berkshire's total revenue rose from $136.2 bilion to $143.7 billion.  Revenues from the company's railroad, utilities and energy assets rose to $30.8 billion from $26.4 billion and insurance premiums earned rose to $32.1 billion from $30.7 billion.

Book value per share in 2011 increased 4.6%, outperforming the 2.1% gain of the S&P 500 with dividends included, Berkshire said. Since 1965 Berkshire has delivered average annual growth of 19.8% versus 9.2% for the S&P 500 (including dividends).

It seems likely that the successor to Buffett and Chariie Munger who are both in their 80's, will be chosen from Todd Combs and Ted Weschler, though it could also be one of the heads of the numerous business units. Buffett keeps investors guessing on that point!