No. of Recommendations: 7
Interesting, but not many surprises there for denizens of this board.
This comment of Seifert's struck me:
CS: Berkshire has already written down part of its investment in KHC. It was not a good investment. Buffet[t] thought the business was more durable than it was. There have been lots of changes in the packaged food industry.
If there's one industry where I would have said there would hot be a lot of change, it is this one, and I'm not convinced there really has been. There's just not a lot of growth, and like for other similar companies (a Swiss giant comes to mind), it is hard to see how the high multiples ever made sense.
The business is not going away, but in a Mag-7 world, people just don't want to own something with so little growth prospects unless is is trading at 10-15x earnings. It's hard to say what KHC's multiple is right now since it lost money last year, but if you take it's average net margin of about 10% over the last 4 years, applied to its $25b of revenues (slightly decreased from $26b four years ago), you get $2.5b in net earnings for a market cap of $28b, or about a multiple of 11. Does Berkshire think it has a safer way of getting an earnings yield of 9%? I didn't think so. So while in retrospect it has certainly been a disappointing investment, looking forward, I wouldn't sell it.
