Berkshire Hathaway. I ve always heard of it as a jewel and now i want to understand whether or not this classification is fair according to my standards.
Page 1 of the 2015 Annual Report:
Berkshire s gain in net worth during 2015 was $15.4 billion, which increased the per-share book value of
both our Class A and Class B stock by 6.4%. Over the last 51 years (that is, since present management took over),
per-share book value has grown from $19 to $155,501, a rate of 19.2% compounded annually.*
And a little bit later:
We ve had experience with both outcomes: I ve made some dumb purchases, and the amount I paid for the
economic goodwill of those companies was later written off, a move that reduced Berkshire s book value. We ve
also had some winners a few of them very big but have not written those up by a penny.
Over time, this asymmetrical accounting treatment (with which we agree) necessarily widens the gap
between intrinsic value and book value. Today, the large and growing unrecorded gains at our winners make it
clear that Berkshire s intrinsic value far exceeds its book value. That s why we would be delighted to repurchase
our shares should they sell as low as 120% of book value. At that level, purchases would instantly and meaningfully
increase per-share intrinsic value for Berkshire s continuing shareholders.
Ok, If this is not clear enough i m going to try to explain. Basically, Buffett is saying this: I ve made purchases, some of them have not been succesful. For every winner, i didn t record positive goodwill in the balance sheet (which is an asset, basically the difference between purchase price and book value of the purchased), but i recognized a loss whenever i had to write the goodwill off the balance sheet. Despite this, i managed to make my book value of 19% compounded for the last 51 year.
This was the first pages of the chairman letter. Now I would like to go into details about what Berkshire Hathaway does and how it does.
Many think that BH is just an holding with no proprietary core business, which owns shares of other companies and collects dividends every year. This is not true. BH owns:
- BNSF Railway, which accounts for 17% of America s intecity freight in terms of revenues (ton-miles). Last year (2015) revenues are $40B, 1/5th of the BH total revenues with a pretax income of $6.8B.
- Berkshire Hathaway, two months ago, purchased Precision Castparts Corp for $32B cash. In BH 10-k filing: PCC has become the world s premier supplier of aerospace components (most of them destined to be original equipment, though spares are important to the company as well) . Too early to judge results but PCC reported in 2014 revenues for $9.6B and a net income of $1.7B with a working base of 30,466 units. Not a bad acquisition. Looking forward to see and admire the results.
- Berkshire Hathaway Insurance & GEICO: insurance divisions which contribute for $40B in the insurance division, and GEICO reports astonishing results every year.
These companies are owned entirely by BH, to not count the many holdings. Just for illustration purposes:
Shares Company % owned Cost (M) Market (M) 151,610,700 American Express Company 15.6 USD 1,287 USD 10,545 819% 46,577,138 AT&T 0.8 USD 1,283 USD 1,603 125% 7,463,157 Charter Communications, Inc 6.6 USD 1,202 USD 1,367 114% 400,000,000 The Coca-Cola Company 9.3 USD 1,299 USD 17,184 1323% 18,513,482 DaVita HealthCare Partners Inc 8.8 USD 843 USD 1,291 153% 22,164,450 Deere & Company 7 USD 1,773 USD 1,690 95% 11,390,582 The Goldman Sachs Group, Inc. 2.7 USD 654 USD 2,053 314% 81,033,450 International Business Machines Corp. 8.4 USD 13,791 USD 11,152 81% 24,669,778 Moody s Corporation 12.6 USD 248 USD 2,475 998% 55,384,926 Phillips 66 10.5 USD 4,357 USD 4,530 104% 52,477,678 The Procter & Gamble Company 1.9 USD 336 USD 4,683 1394% 22,169,930 Sanofi 1.7 USD 1,701 USD 1,896 111% 101,859,335 U.S. Bancorp 5.8 USD 3,239 USD 4,346 134% 63,507,544 Wal-Mart Stores, Inc. 2 USD 3,593 USD 3,893 108% 500,000,000 Wells Fargo & Company 9.8 USD 12,730 USD 27,180 214% Others USD 10,276 USD 16,450 160% USD 58,612 USD 112,338 192%
Below there s a little clause:
Berkshire has one major equity position that is not included in the table: We can buy 700 million shares of Bank of America at any time prior to September 2021 for $5 billion. At yearend these shares were worth $11.8 billion. We are likely to purchase them just before expiration of our option and, if we wish, we can use our $5 billion of Bank of America 6% preferred to fund the purchase. In the meantime, it is important for you to realize that Bank of America is, in effect, our fourth largest equity investment and one we value highly. PEANUTS!
Ok, BH owns a relevant stake of the all quoted companies. What does that mean? Means Dividends. Means capital gains. Means a low variability in earnings with a predictable increasing path (not realizing capital gains is a huge advantage if you can afford that). Coca cola investiment is giving back 1300% and he didn t pay a penny of capital gain taxes on it. Probably dividend/year is higher than the price of a whole share Buffet paid in the early 50s. Do you see the potential of such things?
Let s go straight to the facts now. We are not analyzing a manufacturing company, so my valuation will rely on some different ratios and what for me is important to see in such a company. This is a holding, so in order to produce dividends/accumulate capital it has to get inflows every year. Revenues and gross profit are a reliable measure of what i can expect from this.
Can you see what i see? Revenues going up at 10% CAGR since 2011. Well, it is impressive, really. Revenue growth is followed by a COGS growing at 8% CAGR. Components to me are ininfluent, with higher D&A expense that could be given by higher investments in the railway sector or in PP&E (property, plant & equipment). Honestly I don t care that much to investigate further. What i see is anyway a growing Gross Income. Of course we have to consider that 2011/2012/2013 has been great for stocks, and for US economy. Most BH holdings come from there and so we explain a part of the positive results. Interest expense, which i look at in these companies, is not high, with 3.5B this year and 3B as a mean of the last 5 years. I expect this data to be worse in the future due to the rising interest rates. Two things to note on the BS side. Cash, higher than ever with $74B, almost doubled from 2011. Be careful companies out there, someone ight buy 2/5% of you all of a sudden! Debt, with $75.48B also this is really high, in constant growth in the last 5 years starting from $58B. You know guys, i do like this. Would be helpful to know what kind of debt is this. Is it fixed or floating? Which is its duration? Is this high because in the last year Buffet called the banks and opened a $200 M loan every day because of extremely low rates? If this is what happened be sure that that will be a boost to income. Would be a great move. You pay interest in the first years because you just park that money, but when Interest rates go up you invest for higher rates.
Ok, at this point usually i would talk about cashflows. In this case i don t. Why? Because there s no need to pay dividends. You just need to have a cashflow capable of financing operations and investing/financing activities and you re good. FCF is 15B. Where are all these money going? Bank or shares. That s beautiful.
- Price: 209$
- P/E 14x: not much. Maximum of the last year has been 19x
- P/BV: 1.33x. Minimum has been 1.19x and commitment of company to buy shares at that price had effects. If i had liquidity in January i would have bought a lot of these shares at that price.
- Interest Coverage: 9x. More would probably mean a non efficient allocation of debt. Or not enough debt.
Why is BH trading so low in terms of multiples right now? Well, it s a mixture of things. But i would explain 70% of it with the classical irrational investor. Core business is insurance, and insurance companies margins are negatively correlated with interest rates.
What i think is a good price for BH? Well, this is a good price. BH traded on an average of 1.58x Book Value. Right now we are at 1.33x so we are getting a discount on this stock compared to the price that would have been historical for constant BV 1.58*160 = 252.8$. Right now the discount is 17% more or less.
Follow me on this: If price can t go lower than 1.20 in p/bv, and bv/s can only increase, means that at 1.2 we are going to get the best quotation ever. And 1.33 is not far from 1.2 .. What do you think of this company?
In the shadow of Bellevue s Wilburton Trestle, King County Executive Dow Constantine announces the draft master plan for the Eastside Rail Corridor Regional Trail on February 29 (Photo by Author). Last week, King County Parks published a draft master plan for the Eastside Rail Corridor Regional Trail. The County aims to develop a permanent paved trail on over 16 miles of the corridor. As the trail plan enters a public comment period, Sound Transit is finalizing its own draft system plan. That will clarify how portions of the corridor may be shared with transit. Across the Eastside, efforts to bring the corridor into public use are accelerating. Legacy freight tracks will be removed in 2017, and trails are being expanded. Snohomish County has agreed to buy 12 miles of corridor and is expected to build a trail alongside the active rail line. A once contentious political debate over rails vs trails has been mostly replaced by a consensus that the ERC will serve both (though it still echoes in Kirkland where transit opponents have coalesced around Save Our Trail rhetoric).
Since being rail-banked in 2009, ownership has resided with several jurisdictions. The cities of Redmond and Kirkland mostly own the segments within their respective city limits. Sound Transit owns a 1-mile section where East Link will be built. The balance of the rail-banked area is owned by King County. The County is also the trail sponsor in the Sound Transit area. Sound Transit and other utilities retain easements along the ERC. Owners and stakeholders collaborate through the ERC Regional Advisory Council. Here s a flavor of what s going on:
Eastside Trail Master Plan. The draft master plan, released last week, and open for public comment through the end of March, describes a high quality trail on 16.5 miles of the main line and a portion of the Redmond Spur. Planners envision a paved trail at least 12 feet wide with a 6-foot gravel shoulder for runners and walkers to one side and a smaller gravel shoulder on the other. The plan generally describes two alternative alignments. The lower cost alternative mostly follows the relatively flat rail-bed. An off-railbed alternative specifies a trail closer to the edge of the corridor to provide flexibility for accommodation of other uses. In some areas, only one alternative is possible. Near Renton, the corridor is as narrow as 25 feet. In Bellevue, East Link has already constrained the alignment. An important consideration is that the ERC trail not preclude other uses on the corridor.
Conceptually, the cost of an on-railbed alternative is about $158 million (midpoint of range), and the off-railbed alternative could add $90 million if pursued through the entire corridor. However, only $11 million of that is in the critical Wilburton segment (I-90 to Kirkland) where transit uses are more likely. Partly, that s because this segment is already constrained by East Link and other development so that only one option is available. South of Bellevue, and north of Kirkland, a trail on the railbed carries less risk of being displaced by other uses. The trail master plan will be informed by the concurrent Sound Transit system planning process. A signature element of the ERC trail will be the Wilburton Trestle, almost 1,000 feet long and 100 feet tall. The trestle will be one of the most popular destinations along the trail, and extra space will be added on the structure for viewing without impeding trail traffic.
Transit Connections. East Link will use the rail corridor for about one mile north of downtown Bellevue. Though politically contentious, it s possible that ST3 will also include transit connections along the corridor. All of the Eastside cities endorsed transit on the ERC serving Kirkland and Issaquah in letters to Sound Transit in January.
Disused rails will be removed in areas owned by King County and Sound Transit in 2017, making room for future uses. Map: King County
Rail Removal. In November, King County Council approved plans to remove freight rails through the sections of the corridor that it owns. The first phase of rail removal will extend from Kirkland to Coulon Park in Renton and be complete by mid-2017. Sound Transit will also remove rails in Bellevue to facilitate construction of East Link. A second phase will cover the areas north of Kirkland and Redmond. The County must initiate an RFP for excursion rail in that area, but if no feasible proposal is submitted, those rails will also be removed by early 2018. A symbolic first spike was removed from the rail line in Bellevue on January 8. Selling the surplus rails is likely to help fund trail improvements. Rail removal will facilitate construction of an interim trail, potentially starting in 2017. Executive Constantine indicated the interim trail would begin with an extension from Kirkland to meet the SR 520 trail, creating a continuous connection from Totem Lake to Montlake .
Planned Pedestrian Bridge at the South Kirkland P&R/TOD (Graphic: City of Kirkland).
Kirkland. Rails have been removed through Kirkland, and an interim crushed-gravel trail put in place. Since opening the interim trail in the fall of 2014, the city has focused on improving neighborhood connections to the trail, with walkways and stairs to many adjacent streets. The most ambitious connection to date will open in 2017 in South Kirkland, where Kirkland is building an elevator and bridge to connect the transit station to the trail. Kirkland s master plan anticipates permanent paved trails on the Cross-Kirkland Corridor. Most sections will evolve to a shared use trail for bikes and other faster users, and a slower walking-only trail alongside. The plan describes a shared multi-use corridor with trails generally on the west side and transit to the east, and this general placement was acknowledged in Sound Transit s recent studies. Kirkland s development regulations encourage local businesses to face the corridor. Google s recently expanded campus straddles the corridor with the first paved section of trail in the middle.
Redmond s Central Connector re-orients downtown around transit and walk/bike spaces on the former freight line (Graphic from the Redmond Central Connector Master Plan).
Redmond. Legacy freight rails have also been removed on the corridor spur in Redmond where East Link will terminate, and a trail is being built in phases along Redmond s entire portion. The first phase from downtown Redmond to the Sammamish River Trail was completed in 2013. A second phase, north along Willows Rd to the 9900 block, will be completed this year. A third, and final, phase to about 124th St remains unfunded. That would connect the trail on the Redmond Spur to the nearby County-owned trail north of Kirkland.
Bellevue s Grand Connection will connect the ERC to Downtown and Lake Washington (Graphic: City of Bellevue).
Bellevue. The corridor within the city of Bellevue is owned by King County and Sound Transit. Bellevue has focused on planning connections from the ERC to the community. Most notably, planning has begun on a Grand Connection linking the ERC, through downtown Bellevue, to Meydenbauer Bay. The connection would promote walking and bike use from downtown to Wilburton, including a crossing of I-405. The connection will influence the land use patterns of the Wilburton commercial area by improving connectivity to downtown and the ERC trail.
Snohomish County has agreed to buy a 12-mile section of corridor from the Port of Seattle, culminating an on-again, off-again negotiation over several years. That will allow Snohomish to build a trail alongside the tracks, connecting the King County trail to the south with the Centennial trail to the north. Rail lines would remain in service for freight and perhaps excursion service. The deal is anticipated to close in April.
Seven non-profits with interests in trails and transportation combined to form the Eastside Greenway Alliance. The first Eastside Rail Corridor Summit was held in Bellevue in January. The well-attended event was an opportunity for governments and nonprofits to identify priorities for corridor development. Speakers included urban planner Ryan Gravel and former Atlanta City Council president Cathy Woolard, both closely associated with the Atlanta Beltline. The Beltline has obvious parallels to the ERC; it is a 23-mile former freight rail corridor that is being developed as a trail system with transit alongside.
Eastside Greenway Alliance. Announced at the ERC Summit, the Alliance is an association of non-profit organizations with interests in trails and transportation. The Eastside Greenway Alliance set a goal of a fully built connected multi-use corridor from Renton to Woodinville by 2025. The Alliance will advance multi-use development of the ERC through community engagement, fundraising and advocacy.
- ^ draft master plan (www.kingcounty.gov)
- ^ debate (www.bellevuereporter.com)
- ^ transit opponents (kuow.org)
- ^ ownership (www.kingcounty.gov)
- ^ ERC Regional Advisory Council (www.kingcounty.gov)
- ^ draft master plan (www.kingcounty.gov)
- ^ endorsed transit (seattletransitblog.com)
- ^ approved plans (www.kingcounty.gov)
- ^ first spike (kingcounty.gov)
- ^ recent (seattletransitblog.com)
- ^ studies (seattletransitblog.com)
- ^ Grand Connection (www.ci.bellevue.wa.us)
- ^ buy a 12-mile section (www.heraldnet.com)
- ^ Centennial trail (www.wikiwand.com)
- ^ event (www.kingcounty.gov)
- ^ trail (beltline.org)
- ^ transit (beltline.org)
- ^ Announced (www.cascade.org)
The General Secretariat of the Council (GSC) is the body of staff responsible forassisting 2 EU institutions: the European Council; the Council of the EU, including its presidencies, the Permanent Representatives Committee (Coreper) and the other Council committees and working parties
The GSC helps organise and ensure the coherence of the Council s work and the implementation of its 18-month programme. It assists the European Council and its President and also supports the Council presidency in negotiations within the Council and with the other EU institutions.
The main tasks of the GSC are:to assist, advise and help coordinate the work of the Council and the European Council, including the implementation of the Council s 18-month programme; to support the Council presidency in negotiations within the Council and with other EU institutions; to provide logistical support and handle the practical organisation of meetings (including meeting rooms, document production and translation); to prepare draft agendas, reports, notes and minutes of meetings at all levels
The General Secretariat of the Council of the European Union (GSC) is recruiting a director for its Directorate-General for Administration, Buildings and Logistics. The Directorate s mission is to provide the material infrastructures (buildings, installations and technical equipment) and logistic services (fitting out, removals, transportation) which enable the European Council, the Council, its bodies and the GSC to carry out their functions.
- Manage the Directorate activities and advise in the areas within its remit
- Provide high level policy and procedural advice, analyses and recommendations, orally and in writing, to senior managers and the Secretary-General, the presidencies of the European Council and of the Council, on all matters falling within the Directorate s remit
- Provide strategic leadership and develop policies, concepts and innovative solutions on all matters within the remit of the Buildings and Logistics Directorate
- ^ For more information about this job opportunity visit the official website (www.consilium.europa.eu)