With the 25-day go-shop period attached to Berkshire Hathaway’s (BRK.A) (BRK.B) acquisition of Alleghany expiring, and no competing proposals to purchase the company arising, we have increased our fair value estimate for the wide-moat firm to $550,000 ($367) per Class A (B) share from $525,000 ($350). Our new fair value estimate is equivalent to 1.41 and 1.24 times our estimates for Berkshire’s book value per share at the end of 2022 and 2023, respectively. For some perspective, during the past five (10) years, the shares have traded at an average of 1.42 (1.41) times trailing calendar year-end book value per share.
With the 25-day go-shop period attached to Berkshire Hathaway’s (BRK.A) (BRK.B) acquisition of
Alleghany expiring, and no competing proposals to purchase the company arising, we have increased our
fair value estimate for the wide-moat firm to $550,000 ($367) per Class A (B) share from $525,000 ($350).
I’m a little mystified by the reasoning at work there.
Alleghany was, until the deal, trading with a market cap of around $8.9bn.
Berkshire is paying $11.4bn in cash for that. Maybe it’s worth even a pinch more than that to Berkshire, so maybe the value of Berkshire is up a bit.
Perhaps we purchased (say) $15bn in value, and the aggregate value of Berkshire is up by $3.6bn because of the deal closing.
That would increase the value of a share of Berkshire by about $2,500, not $25,000.
Perhaps they meant to say that, after this deal and all of Berkshire’s other earnings and activity this quarter, we are raising the value estimate by…
Gregg Warren is playing catch-up on BRK valuation. He was very circumspect on BRK valuation during 2018-2021, even during times when it traded below 1.2 PB. Many on this board were shouting about how cheap it was and advised using call options to leverage the investment.
Now Gregg sees a PB of 1.4 as appropriate as it is the average of 5 and 10 year periods. This is probably in the middle of the range of most estimates now.
The last few years of asking questions at AGM have probably helped improve his understanding and valuation of BRK. To his credit, at least he is learning.
I was taught the number 10 is spelled ‘ten’ not ‘five’ but who am I to judge, I’m not the one doing this stuff professionally.
We continue to view Berkshire’s decentralized business model, broad business diversification, cash-generating capabilities, and unmatched balance sheet strength as true differentiators. These advantages have been overshadowed by an ever-expanding cash balance, which is earning next to nothing in a near-zero interest-rate environment. However, we believe the company has finally hit a nexus where it is far more focused on reducing its cash hoard through stock and bond investments and share repurchases. In the past eight calendar quarters, Berkshire has repurchased $52 billion worth of its common stock, eliminating around 9.1% of its total Class A equivalent shares outstanding, and it seems committed to matching our expectations for $6 billion-$8 billion in quarterly share repurchases during 2022-26.
Gregg Warren has released his updated report on BRK. Just before the AGM.