Thread by @MarAzul_90

I know $BRK is a boring name and most are not interested in this, but here I try to provide some sense of value (equity not EV) for certain subsidiaries:

BNSF--$75bn (18x fcf or 12x EBT). This is a 10% discount to the EV of UNP. For 2016, BNSF had EBIT of $6.6bn compared to $7.2bn for UNP.

UNP is a good comparable since both have ~32,000 route miles, operate in similar markets and had similar EVs ($40bn) at the time of the BH acquisition of BNSF (8 yrs ago).

Berkshire Hathaway Energy ($38bn) In February 2017, Walter Scott sold 35,000 shares of BHE to BH for $19mm or $542.85 per share. Mr. Scott has an agreement with BH by which he can sell shares at “fair value” to the company.

Using that figure as fair value, yields a value for BHE of $41.9bn (15x earnings & 1.5x BV). BH owns 90.2% of BHE.

Geico ($41bn) In 1996, BH bought the ~50% it didn´t own of Geico. At the time, BH paid 2.4x TBV and a goodwill of 97% of premium volume (Buffett has mentioned why this value for the intangibles is fair).

Using the same calculation we get to a value of $41.2bn ($15.7bn of surplus + $25.5 billion of goodwill which is calculated as 97% of current premium volume).

A good comparable is Progressive which has a 9% share of the auto market (compared with Geico-12%). Progressive also offers other services, but overall Geico is still 15% larger based on premiums earned.

Progressive´s market value is $30bn, or 3.3x BV (using same multiple for Geico would yield higher value than the one calculated using WEB´s methodology).

Precision Castparts ($39.0bn) BH agreed to acquire PCC for $32.5bn or 18x earnings in august 2015.

Since then the market has run 30% excl. divs and the industrial, aero and oil end markets have strengthened significantly. In addition, PCC has reinvested earnings and acquired companies in this time frame.

If we assume PCC would have appreciated 20% over this 2.5 years, the company would be worth $39bn.

Manufacturing, Service and Retailing businesses excluding PCC--$80 billion
These businesses might generate $4.5bn in after-tax earnings and an 18x multiple can be considered fair.

these are high quality businesses incluidng Iscar, See´s, Dairy Queen, Shaw, etc. which earn +20% ROICs

to have a sense of value, transaction valuations (when BH acquired) were as follows: Duracell-$6.5bn 2015; Iscar-$10bn 2013; Marmon-$15bn 2013; Lubrizol-$9bn 2011...these are some of the largest

Financial Products ($25bn) This unit includes Clayton home and its financial arm, transportation and furniture leasing, and other financial products

BV is ~$23bn and after-tax earnings $1.4bn. Our value represents 1.1x BV and 17.5 earnings (earnings multiple might be high, but valuation is close to BV).

Insurance---$260 billion This segment is composed of 4 large, over-capitalized and unique insurance segments (GEICO, BHRE, GEN RE and BH Primary).

These are unique because they consistently generate UW profits, grow float and invest mostly in equities. None of these are common in the industry.

At 2017E, the group should have $170bn in BV and $300 in liquid assets ($180bn stocks, $20bn FI and $100bn cash & eqs).

Leverage is quite low (inv./equity 1.8x, vs avg. ~3x) compared to most comps, however the industry invests mostly in FI. This is a major comp advantage for BH (ability to withstand volatility).

As I see it, BH wants to and can separate $50bn from its insurance operations by buying a new company. That would leave the insurance group with $120bn in BV and $250bn in liquid assets PF (less over-capitalized, but still very conservative).

What is left, has generated an average UW profit of $2bn in the last 10 years (this year will be atypical). The $250bn in investments have earning power of $13.5bn. These 2 together yield earning power for the group of $15.5bn.

At 13.5x, those earnings are worth $210bn (1.75x BV or slightly less than BV+float). Add the cash of $50 billion that has been separated and we get $260bn.

Conclusion:

BNSF: $75bn
BHE: $38bn
PCC:$39bn
Manufacturing, Serv. and Ret. (excl PCC): $80bn
Financial Services: $25bn
Insurance: $260bn

Berkshire Value: $517bn

This is just one way to see it. Different people will have different opinions. I tried to be conservative.

I believe Intrinsic Value has increased significantly since this post for various reasons including Tax Reform, momentum of US economy, subsidiary performance, etc...

BNSF- Since this post, UNP share price has increased +20% due to the strenght in the US economy, rise in shipping costs due to new regulations in the trucking industry, higher oil prices, etc.

In 2017, BNSF generated earnings before taxes of $7.3 compared to $8.1bn for UNP. Applying the same ~10% discount to UNP, BNSF would be worth $100bn (18.5x fcf).

BHE- In March 2018, BRK bought 149,281 BHE shares from the Scott family for $90mm. That puts the value of BHE at $46.4bn, and BRK´s ownership would be valued at $41.9bn (1.6x BV or 20x earnings).

Insurance & Corporate- The value of the equities portfolio has increased significantly over the past 6 months, due to appreciation and reinvested cash flows into equities. The value of the equities portfolio (including KHC) is currently +$200bn.

The combination of cash ($98bn), bonds ($20bn) and equities (~$200bn) yields a total value of liquid assets of $318bn, which is mostly financed with "float" of $116bn and surplus of $180bn.

I think Berkshire will manage to earn 6% from this portfolio over time (I am being conservative). (6%*$318bn = $19.1bn). Assuming the cost of "float" is zero, BH Insurace operations should do $19.1bn in earnings per year, grwoing with "float" and retained earnings.

Assuming, 9% required return and 2.5% growth this is worth $290bn (1.6x statutory surplus or 15x normalized earnings).

MSR excluding PCC earnings have increased significantly with the tax cuts, stronger economy and improved subisidary performance. After tax earnings for 2018 of thsi segment might reach $5.5bn. At 18x fcf, these earnings are worth $100bn.

Updated Value:

BNSF: $100bn
BHE: $42bn
PCC:$39bn
Manufacturing, Serv. and Ret. (excl PCC): $100bn
Financial Services: $25bn
Insurance: $290bn

Berkshire Value: $596bn (BRK-A $362,300; BRK-B $241)

So Buffett has given us more information on his valuation method, and basically discarded the 2 column approach in the process. He mentions five "groves", 1) wholly-owned subs, 2) equities, 3) shared control companies, 4) cash & fixed income and 5) insurance.

he mentions that adding the first four groves should get us an approximation of intrinsic value. The 5th grove, insurance, is a source of "cost-free" funding. If "float" ends up being better than "cost-free" and grows, then our analysis might be too conservative.

1) Wholly-Owned Subsidiaries: $306BN
2) Equities:$158.3BN (after substracting $14.7BN in deferred taxes)
3) Shared Control Investments: $20BN
4) Cash, Equivalents & FI: $132BN
5) Insurance: No Value

Berkshire Value: $616.3BN (BRK-A $375,415; BRK-B $250.28)

this might be conservative, since I used estimated valuations done in may for the subsidiaries and 12/31 prices for equities.