360° Coverage : The Intrinsic Value Of Berkshire Hathaway Shares Exceeds 120% of...

2 Updates

The Intrinsic Value Of Berkshire Hathaway Shares Exceeds 120% of Book Value "by a Meaningful Amount"

Mar 1 2014, 8:00pm CST | by

Throughout Warren Buffett’s 2014 letter to Berkshire Hathaway shareholders he drops all kinds of suggestions about the potential value of those shares, which have made fortunes for so many astute...

Filed under: news

 
 
 

33 weeks ago

The Intrinsic Value Of Berkshire Hathaway Shares Exceeds 120% of Book Value "by a Meaningful Amount"

Mar 1 2014, 8:00pm CST | by

Throughout Warren Buffett’s 2014 letter to Berkshire Hathaway shareholders he drops all kinds of suggestions about the potential value of those shares, which have made fortunes for so many astute long term followers of the 49 years of the Buffett-Munger wealth producing era. My tentative conclusion is that BRKA shares may well be worth eventually a good deal more than the $173 per share they closed at on Friday.

First, Buffett made it clear he was prepared to repurchase Berkshire Class A shares at 120% of book value just as he did during 2012. Well, presently, 120% of book value of $135,000 a share would total $162,000 a share. Since the shares traded above $173,000 on Friday, or 7.5% higher than 120% of book, Buffett is not repurchasing Berkshire right now.

Ah, but to my way of thinking Buffett is enticing us in the letter to consider whether the intrinsic value of his company’s shares are actually a premium that places their value at more than $173,000 a share, or 15 times earnings and 127.5% above the book value plus 20% he suggested would be his buy-in price.

Here’s how I get to this conclusion. The float or excess capital in Berkshire’s insurance operations should be counted as book value, but isn’t for accounting purposes. Right now ” the full amount of our float is deducted as a liability, just as if se had to pay it out tomorrow and could not replenish it,” Buffett writes. Yes, there is $15.5 billion of goodwill that is in book value and must be subtracted from the “ float” of $77 billion to come to a truer $62 billion of float or potential book value.

” Charlie and I believe the true economic value of our insurance goodwill… to be far in excess of its historic carrying value,”($77 billion), Buffett writes in his letter to shareholders. And here’s the punch line; ” The value of our float is on reason– a huge reason– why we believe Berkshire’s intrinsic business value substantially exceeds its book value.” Best read that line over; Buffett is signaling the “ float” is worth a great deal more than $77 billion.

And there’s more anticipation that the intrinsic value of Berkshire shares are going to be going quite significantly thank you very much. ” Charlie and I hope to build Berkshire’s per share intrinsic value by (1) constantly improving the basic earning power of our many subsidiaries; (2) further increasing their earnings through bolt on acquisitions; (3) benefiting from the growth of our investments; (4) repurchasing Berkshire shares when they are available at a meaningful discount from intrinsic value; and (5) making an occasional large acquisition.” (without issuing more Berkshire shares)

Succinctly, Buffett spells out ho the 4 largest portfolio stock holdings, American Express, Coca Cola, IBM and Wells Fargo will contribute to expectations of steadily higher intrinsic value. He fully expects the $39 billion unrealized gains from holding these 4 stocks to gain from dividends the 4 companies pay Berkshire every year, and from gradually increasing Berkshire’s ownership of all 4 stocks. Just an aggregate increase of 1/10th of 1 percent of the equity in the 4 companies will “ raise Berkshire’s share of their annual earnings by $30 million.” Berkshire did not report $3 billion of earnings from the Big Four stocks, which he calls “every bit as valuable to us as tghe portion Berkshire records.”

Then, too, buying in the minority interests in Iscar, the Israeli tool manufacturer and Marmon, the Pritzker holding company, increased “Berkshire’s excess of intrinsic value over book value by… $1.8 billion.

Buffett doesn’t want to give us a figure on intrinsic value in fear the public will take it as gospel and bid the stock immediately to that level. Still, I get the feeling that there’s a very good chance over time the intrinsic value has to be a good deal more than 127.5% of book value. There are a solid number of separate reasons for believing this to be true.

Source: Forbes Business

 
Update
2

7 weeks ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new company (NewCo) and slashi ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

7 weeks ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of the double tragedies of MH370 ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Khamenei wants less reliance on oil
Tehran, Oct 23 (IANS) Iran's Supreme Leader Ayatollah Ali Khamenei called on the country's officials Wednesday to formulate plans to cut Iran's dependence on oil revenues and manage the economy on the basis of the domestic capabilities.
 
 
Nigerian parliament approves $1 bn loan to fight Boko Haram
Lagos, Oct 23 (IANS) The Nigerian House of Representatives Wednesday approved President Goodluck Jonathan's request to borrow not more than one billion dollars to tackle the security challenges facing the country.
 
 
Kenya to train 30,000 health workers on Ebola
Nairobi, Oct 23 (IANS) Kenya has plans to train 30,000 health workers on Ebola screening, prevention, control and case management, the health ministry said Wednesday.
 
 
Germany pledges additional five mn euros to fight Ebola
Berlin, Oct 22 (IANS) Germany Wednesday said it would provide over five million euros ($6 million) in additional funds to promote Ebola research.
 
 
 

Latest from the Network

European Champions League standings
Paris, Oct 22 (IANS) Following are the European Champions League standings for Groups E to H after Tuesday's matches (tabulated under matches played, won, drawn, lost, goals for, against, points), according to Xinhua...
Read more on Sport Balla
 
Rogerio set to break Giggs world record
Rio de Janeiro, Oct 22 (IANS) Sao Paulo goalkeeper Rogerio Ceni is one victory away from earning his fourth Guinness World Record by eclipsing a mark held by Manchester United legend Ryan Giggs. The 41-year-old will...
Read more on Sport Balla
 
Ryan Reynolds can't keep his hands off Blake Lively
Ryan Reynolds was ''really sweet'' to Blake Lively at the Angel City Ball. The couple, who got married in September 2012, made their first red carpet appearance together in New York City on Monday night (10.20.14) since...
Read more on Celebrity Balla
 
Kris Jenner doesn't know who Bruce Jenner is dating
Kris Jenner has ''no idea'' whether Bruce Jenner is dating her best friend. The 58-year-old reality TV star, who split from the Olympic gold medallist last October after 23 years of marriage, claims she doesn't know if...
Read more on Celebrity Balla
 
When Rihanna dressed like 'Harry Potter'
New York, Oct 22 (IANS) Singer Rihanna was spotted here in a Harry Potter style costume. She wore the wizard-like get-up while heading for a business meal here Monday, reports mirror.co.uk. The 26-year-old combined a...
Read more on Celebrity Balla
 
Germany raises humanitarian aid to Iraq
Berlin, Oct 22 (IANS) Germany has pledged a further 20 million euros (about 25.5 million dollars) in humanitarian aid to Iraq, the foreign ministry said in a statement Tuesday. The additional funds are immediately...
Read more on Politics Balla
 
India calls on Israel, Palestine to resume peace process
United Nations, Oct 22 (IANS) India has called upon Israelis and Palestinians to resume the peace process as "dialogue remains the only viable option" to address the issues confronting the region. In a brief statement...
Read more on Politics Balla
 
Airstrikes help ground forces fight IS: Pentagon
Washington, Oct 22 (IANS) Kurdish forces are in control of the majority of the Syrian city of Kobane despite efforts by the Islamic State (IS) to take the town, a spokesperson for US defence department said Tuesday....
Read more on Politics Balla
 
Palestine, Israel urged at UN to halt unilateral initiatives
United Nations, Oct 22 (IANS) UN Secretary-General Ban Ki- moon Tuesday called on Palestine and Israel to overcome differences and halt unilateral initiatives that fuel mistrust, so as to pursue long-term stability in...
Read more on Politics Balla
 
China urges Israel to create conditions for peace
United Nations, Oct 22 (IANS) Chinese government has called on Israel to create necessary conditions for the resumption of peace talks with Palestine. At an open debate of the Security Council on the situation of the...
Read more on Politics Balla