Thursday, March 01, 2007

Berkshire Hathaway (BRK) Valuation

Today, Warren Buffett's holding company, Berkshire Hathaway released its earning report. The results were stunning - with 16.9 billion dollars of net worth added.

The annual letter provides a lot of details and is a joy to read. The worlds best investor clearly delivered in 2006 while adding significant positions to the equity portfolio and buying companies outright.

In this section we estimate the intrinsic value using two methods. First one is book value * multiple. The second one is a multiple of the book value.

For the first method, we will use two multiples - 1.9 at the low end and 2.0 on the high end. This gives a per share value of 132.5K at the low end and 139K at the higher end. The mid point between these two is 135.75K.

The second method would involve investments + sub earning * multiple. This is 80636 + ( 3625 * 12 ). This gives a value of 124316. This assumes that the insurance operations are worth only the investments per share. If we assume the insurance businesses are worth atleast 10 billion on top of the per share investments, it adds 6,600 per share. This gives a value of 130916.

Either way, we are looking at a valuation of 125K+ and currently the shares are selling at a 25% discount to intrinsic value.


Anonymous said...

Thats because insurance business is lumpy..also concerns on successor.. Did u get some. Are u professional money manager?.

Anonymous said...

Not so much concerned about the successor - I am sure there will be a couple of good investment officers to do capital allocation.