I would sincerely be interested in those knowledgeable enough to value a railroad.
…value a railroad.
Well, for a sense of scale one can start by looking at the after-tax earnings.
They are generally a bit above true owner earnings because the accounting depreciation understates things, but it’s not a night-and-day difference.
Period and net after-tax total profit in millions.
2010 $2,235 (partial year starting Feb 12)
2011 2,972
2012 3,372
2013 3,793
2014 3,869
2015 4,248
2016 3,569
2017 3,959
2018 5,219
2019 5,481
2020 5,161
TTM 5,798 Four quarters to 2021-Q3
In another sense, the owner earnings have been huge.
The dividends paid to the parent are huge…not much different from the cash cost of the railroad, IIRC.
This is a division that throws off capital, not one that is a destination for a lot of new money like the utilities.
So the trajectory of rising earnings is not a result of large amounts of new capital.
Jim
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TTM 5,798 Four quarters to 2021-Q3
PS,
FWIW, the cost of the railroad was $33.035bn.
Part of that was paid in shares which were somewhat underpriced at the time.
I estimate the total value paid was about $35.9bn.
So, TTM earnings represent an earnings yield of 16.1% on “value paid” purchase price after about 12 years.
An optimist could think of it as higher than that because much of the purchase price was in money borrowed at negligible rates,
and because a lot of the purchase cost was paid back as dividends in the first few years.
There are those who think that Berkshire is doomed, because the railroad deal worked out so well that
nobody in their right mind will sell (or be seen to sell) a big firm to Mr Buffett.
So no more big deals.
Jim
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There are those who think that Berkshire is doomed, because the railroad deal worked out so well that
nobody in their right mind will sell (or be seen to sell) a big firm to Mr Buffett.
So no more big deals.
On the other hand, Precision Castparts (which was purchased for a similar amount) has not worked out nearly so well. Maybe Berkshire isn’t doomed after all!
“TTM 5,798 Four quarters to 2021-Q3”
Thanks so even putting a 20x multiple on after tax earnings at $6B to just round up gives us $120B.
There are those who think that Berkshire is doomed, because the railroad deal worked out so well that
nobody in their right mind will sell (or be seen to sell) a big firm to Mr Buffett.
So no more big deals.
At some point there will be a liquidity crunch and Berkshire will be able to scoop up something good by providing cash when it is desperately needed. And get some tasty warrants out of it.
You have public market peers and you can use their valuation as proxy.
At some point there will be a liquidity crunch
The world is awash with liquidity, about $14.5 Trillion government issued bonds are trading at negative yield. Let it sink. There is no liquidity crunch in sight.
What the pandemic has proved is, governments no longer are afraid to print, US printed close to $7 T for COVID. Until it breaks spectacularly, governments and central banks are emboldened to print as much as they think is needed.
Buffett is not the last man standing, it was, is and always will be Central Banks, but now central banks and governments have recognized that.
What Berkshire is going to do with its mountain of cash is not clear, but I don’t think Buffett is expecting he is going to get an opportunity in a crisis to deploy them.
In his response to selling Airlines stocks, he clearly articulated, if he continued to hold those shares it would be disadvantageous for those companies to receive government help or in other words Buffett and Berkshire stepping in during a crisis means, government will not be stepping in. Such situations do arise, but they are going to be individual circumstances and not economy wide or industry wide situations.
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Yes the quickest way to estimate the value of BNSF is to check the valuation of UNP. They will be somewhere in the same ballpark. I’ve used $120 Billion as a lazy place holder and it is close enough.
The old man told us in the most recent annual report that BNSF is worth about the same (“pretty much a toss-up at this point”) as 5.4% of Apple. Apple wasn’t valued at $3 Trillion when he said that, but it is rare for Buffett to throw out an estimate of the intrinsic value of a wholly owned subsidiary (unless he’s writing it down…)
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“Yes the quickest way to estimate the value of BNSF is to check the valuation of UNP. They will be somewhere in the same ballpark. I’ve used $120 Billion as a lazy place holder and it is close enough.”
about $162 Billion market cap for UNP today. Very close to the value of Apple holding.
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Yes the quickest way to estimate the value of BNSF is to check the valuation of UNP.
They will be somewhere in the same ballpark. I’ve used $120 Billion as a lazy place holder and it is close enough.
Doesn’t that presume that market price of UNP is a good measure of its actual value?
As with any stock, sometimes that’s a reasonable assumption, but more often not.
Though the current market cap is 35% above your $120bn figure, so maybe you’ve taken that into account…
Jim
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