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- Manlobbi
Halls of Shrewd'm / Shrewdsmith
No. of Recommendations: 10
Assumptions:
15x multiple of earnings
21% tax rate
30% of float ($49Bn) held as reserve (Berkshire say $30Bn)
Non-Insurance Operating Businesses Earnings Value 22.36 x 15 = 335
Equity Investments less Taxes 272
Partially Owned Businesses Earnings Value 1.86 x 15 = 27.9
Cash & Fixed Income Available for Investment 125 + 25 - 49 = 101
5 Groves Total Value $736Bn
A Share Equivalents 1459733
5 Groves Total Value per A Share $504k
5 Groves Total Value per B Share $336
Shareholders Equity + Float + 1/2 Deferred Taxes Total Value = $655Bn
per B Share $299
Current price to book 1.41
Price to peak book 1.32
Repurchases at $312 equivalent in December.
I'm happy.
No. of Recommendations: 9
Some observations or questions.
My methodology is similar, However?
Grove 4: What about cash in the rail business of $3.55 BB
Grove 3: Do you include the oxy preferred, Oxy Warrants and Oxy stock position. I don't believe the $308 BB equity portfolio includes any Oxy? Not sure. Can someone confirm or correct this?
Grove 1: Do you make any adjustment for reciprocity contract offsets to earnings? My view is the annual hit from reciprocity insurance programs needs to added back into operating after tax earnings.
Where do you include the annual benefit of underwriting profits? I assume $1.39 BB which I believe is the average over the past 21 years.
Of course next quarter we can add the $5 BB benefit from the Pilot updated mark to market.
I also add some retained earnings YTD.
Overall I get $367.
No. of Recommendations: 4
In regard to Grove 3, from Note 4 (pg K-84): "During 2022, we began acquiring common stock of Occidental Petroleum Corporation ('Occidental') and our aggregate
voting interest exceeded 20% on August 4, 2022. We adopted the equity method with respect to our investment in Occidental
common stock as of that date and included this investment in equity method investments at December 31, 2022. See Note 5.
We continue to report our investments in Occidental Cumulative Perpetual Preferred Stock and Occidental common stock
warrants at fair value as equity securities, as such interests are not in-substance common stock under GAAP and are not eligible
for the equity method."
No. of Recommendations: 0
Thanks.
Drops my 5 grove at 15X down to $361.
No. of Recommendations: 1
My methodology is similar, However?
Grove 4: What about cash in the rail business of $3.55 BB
I just assume they need it in the rail business. It's not available for investment.
Grove 3: Do you include the oxy preferred, Oxy Warrants and Oxy stock position. I don't believe the $308 BB equity portfolio includes any Oxy? Not sure. Can someone confirm or correct this?
Seabourne set us right on this - thanks.
Grove 1: Do you make any adjustment for reciprocity contract offsets to earnings? My view is the annual hit from reciprocity insurance programs needs to added back into operating after tax earnings.
Too fancy for me.
Where do you include the annual benefit of underwriting profits? I assume $1.39 BB which I believe is the average over the past 21 years.
Buffett didn't include it in the 5-groves. Just another area where the 5-groves IV is conservative. I expect that over time underwriting profits will be nicely positive.
Of course next quarter we can add the $5 BB benefit from the Pilot updated mark to market.
I also add some retained earnings YTD.
Overall I get [at 15X down to $361].
If I add back the 30% of float ($49Bn) "held as reserve", I get $359.
My $336 number is quite conservative, I think.
Just did a quick look through also: $338 at 15x
No. of Recommendations: 0
From Morningstar's Gregg Warren:
'Berkshire Hathaway Earnings Update
Wide-moat Berkshire Hathaway BRK.B reported fourth-quarter and full-year results that were basically in line with our expectations, so we don't expect to alter our fair value estimate of $555,000 for the A shares and $370 for the B shares. We view the shares as being moderately undervalued.
For the fourth quarter, revenue, including realized and unrealized gains and losses from Berkshire's investment and derivative portfolios, declined 17.6% to $92.6 billion from $112.4 billion in the prior-year period on a marked decrease in gains from the investment portfolio. For the full year, revenue declined 34.0% to $234.2 billion from $354.7 billion in 2021. Excluding the impact of investment and derivative gains and losses and other adjustments, operating revenue increased 8.7% to $78.2 billion for the quarter and 9.4% to $302.1 billion for the year.
Year over year, operating earnings, excluding the impact of investment and derivative gains and losses, declined 7.9% to $6.7 billion for the quarter and increased 12.2% to $30.8 billion for the year. When including the impact of the investment and derivative gains and losses, operating earnings declined to $18.2 billion from $39.6 billion in the fourth quarter and to negative $22.8 billion from $89.8 billion for the year.'
No. of Recommendations: 2
Q. Where do you include the annual benefit of underwriting profits? I assume $1.39 BB which I believe is the average over the past 21 years.
A. Buffett didn't include it in the 5-groves. Just another area where the 5-groves IV is conservative. I expect that over time underwriting profits will be nicely positive.
I think this is right, but it's a big omission/ conservative factor.
Bloomstram estimates that total Berkshire earnings in 2022 were $53.9b, after making multiple adjustments, including smoothed underwriting results and smoothed capital gains from the stock portfolio, with underwriting earnings $3.2b of that. That represents a combined ratio of 95%, i.e. 5% of earned premiums falling to pre-tax earnings. As in much of the Bloomstramian analysis, that may be a tad optimistic: here are the pre-tax earnings and percentages from the last 15 years:
Underwriting
2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008
Revenues 74645 69478 63401 61078 57418 60597 45881 41294 41253 36684 34545 32075 30749 27884 25525
Earnings (98) 936 838 417 2010 (3239) 2131 1837 2668 3089 1625 248 2013 1460 2690
% -0.1% 1.3% 1.3% 0.7% 3.5% -5.3% 4.6% 4.4% 6.5% 8.4% 4.7% 0.8% 6.5% 5.2% 10.5% average: 3.5%
It is interesting that the numbers are not great for the last 6 years; maybe trouble with GEICO? But 0% does not seem like the best neutral assumption!
Regards, DTB
No. of Recommendations: 2
Tilson current 2 column BRK IV estimate from Empire Financial newsletter:
'This results in $19,456 in adjusted pretax earnings per share in 2022, to which I apply a multiple of 11 times to arrive at a value for the operating businesses of $214,000 per share.
Now add the $348,000 in cash and investments per share to arrive at a total intrinsic value of $562,000 per A-share (or $375 per B-share).
With the A-shares closing yesterday at $463,525, that means the stock is trading 18% below my estimate of its intrinsic value.
In summary, Berkshire is incredibly safe, growing at a healthy rate, and its stock is cheap. Since the market's recovery after the COVID crash, Berkshire has traded at a 0% to 20% discount, so today it's near the high end of that range ' making this an excellent time to own the stock.'
No. of Recommendations: 6
It is interesting that the numbers are not great for the last 6 years; maybe trouble with GEICO? But 0% does not seem like the best neutral assumption!
It's icing on the cake, mate!
Nice work on the 22 year table. Shows how underwriting earnings are lumpy but nicely positive over time. Realized cap gains will be similar. But making these adjustments in advance is all too fancy for me.
Underwriting earnings and cap gains show up in book value, and for the 5 groves they show up in the equities, cash and hopefully wholly owned business earnings eventually.
