Berkshire Hathaway : le conglomérat de Warren Buffett

Je trouve la lettre de Bill Ackman très intéressante, en effet il a ouvert une ligne de +10% de son fond Pershing Square Capital Management.

Il met en avant le business de réassurance de BRK, qui est tout de même le plus gros business de ce type au monde. Ainsi que les autres business non côté qui marchent très bien.

Bill Ackman a écrit :

New Position
Berkshire Hathaway (“BRK.B”)

Recently, PSH acquired Berkshire Hathaway common stock representing approximately 11% of NAV. My interest in Berkshire began decades ago when I began following the company in 1988. I have attended the substantial majority of shareholder meetings since the early 1990s and followed the company and Warren Buffett—Berkshire’s Chairman, CEO and controlling
shareholder—extremely closely since that time. Yet, funds I have managed have owned Berkshire only once for a brief period in late 1999 and 2000.
The catalyst for our current investment in Berkshire is our view that the company is currently trading at one of the widest discounts to its intrinsic value in many years, at a time when we expect the operating performance of its subsidiaries to improve as a result of certain managerial and organizational changes at the company. While Mr. Buffett has long been one of
most high-profile and closely followed investors in the world, we believe that Berkshire Hathaway’s undervaluation is partially explained by the fact that it is one of the least followed and misunderstood mega-cap companies.

Berkshire is often described in the media as akin to an investment fund, leaving many with the impression that Berkshire’s shareholder returns are dependent on Warren Buffett’s extraordinary stock-picking ability. While this depiction of Berkshire was a better reflection of its reality in its earlier years, it no longer reflects the company’s current reality. Today, Berkshire is a
$500 billion market cap holding company with about half of its value residing in its insurance subsidiaries, and the balance in controlling stakes in highly diversified operating companies. Mr. Buffett has clearly designed the company to succeed decades
after he is no longer running the company. As a result, we believe that Berkshire should continue to generate high returns for shareholders from the current stock price even if the investment returns from the company’s large cash holdings and marketable securities portfolio are similar to that of the broad market indices.

Berkshire’s primary asset is the world’s largest insurance business, which we estimate represents nearly half of Berkshire’s intrinsic value. In its primary insurance segment, Berkshire focuses on the reinsurance and auto insurance segments. In reinsurance, Berkshire’s strong competitive advantages are derived from its enormous capital base, efficient underwriting (a quick yes or no), ineffable trustworthiness, and its focus on long-term economics rather than short-term accounting profits,
all of which allows the company to often be the only insurer capable of and willing to insure extremely large and/or unusual, bespoke insurance policies.

We believe that Berkshire’s reinsurance business, operating primarily through National Indemnity and General Re, is uniquely positioned to serve its clients’ needs to protect against the increasing frequency and growing severity of catastrophic losses.
In auto insurance, Berkshire subsidiary GEICO operates a low-cost direct sales model which provides car owners with lower prices than competitors that rely on a traditional agent-based sales approach. GEICO’s low cost, high quality service model has enabled it to consistently gain market share for decades.
The enduring competitive advantages of Berkshire’s insurance businesses have allowed it to consistently grow its float (the net premiums received held on Berkshire’s balance sheet that will be used to pay for expected losses in the often distant future) at a higher rate and a lower cost than its peers. While Mr. Buffett is best known as a great investor, he should perhaps
also be considered the world’s greatest insurance company architect and CEO because the returns Berkshire has achieved on investment would not be nearly as good without the material benefits it has realized by financing these investments with lowcost insurance float.

For more than the last decade, Berkshire has grown its float at an 8% compounded annual growth rate while achieving a negative 2% average cost of float due to its profitable insurance underwriting, while incurring an underwriting loss in only one out of the last 15 years. These are extraordinary results particularly when compared with the substantial majority of insurance
companies which lose money in their insurance operations and are only profitable after including investment returns. Furthermore, we believe that Berkshire’s cost of float will remain stable or even decline as its fastest growing insurance businesses (GEICO and BH Primary) have a lower cost of float than the company’s overall average.
Since the end of 2007, we estimate that Berkshire has averaged a nearly 7% annual rate of return on its insurance investment portfolio while holding an average of 20% of its portfolio in cash. Berkshire has been able to produce investment returns that significantly exceed its insurance company peers as the combination of the company’s long-duration float and significant shareholders’ equity allow it to invest the substantial majority of its insurance assets in publicly traded equities, while its peers are limited to invest primarily in fixed-income securities. We believe these structural competitive advantages of Berkshire’s insurance business are enduring and will likely further expand.
Berkshire also owns a collection of high-quality, non-insurance businesses, which include market-leading industrial businesses, the largest of which are the Burlington Northern Santa Fe railroad and Precision Castparts, an aerospace metal parts manufacturer. While Berkshire’s non-insurance portfolio is comprised of highly diversified businesses that have been
acquired during the last 50 or so years, we estimate that the portfolio derives more than 50% of its earnings from its largest three businesses: Burlington Northern (>30%), Precision Castparts (~10%), and regulated utilities (~10%).
Burlington Northern is North America’s largest railroad which benefits from strong barriers to entry, industry-leading scale, and long-term secular growth due to rail’s cost advantages over trucking in moving freight over long distances. Precision Castparts has a strong competitive position in complex metal parts and components manufacturing due to the stringent regulatory requirements in the aerospace industry, and an excellent future growth outlook due to a nearly decadelong backlog of aircraft deliveries that are required to support the world’s growing travel needs.
Berkshire’s regulated utilities business primarily consists of a handful of well-managed, highly efficient energy utilities that earn a reasonable return on equity while satisfying their customers’ and regulators’ desire for low energy prices. Berkshire’s regulated utilities business is relatively insulated from economic downturns due to the essential nature of the service it provides, which has allowed it to steadily grow its earnings during all phases of the economic cycle.

While we have utilized a number of different approaches to our valuation of Berkshire, we believe it is perhaps easiest to understand the company’s attractive valuation by estimating Berkshire’s underlying economic earnings power, and comparing the company’s price-earnings multiple to other businesses of similar quality and earnings growth rate. Using this approach, we believe that Berkshire currently trades at only 14 times our estimate of next 12 months’ economic earnings per share (excluding the amortization of acquired intangibles), assuming a normalized rate of return of 7% on its insurance investment portfolio. While generating a 7% return on such a large amount of investment assets is not a given—particularly in an extraordinarily low-rate environment—we believe that Berkshire’s ability to invest the substantial majority of its insurance assets in equity and equity-like instruments and hold them for the long term makes this a reasonable assumption. Based
on these assumptions, we believe that Berkshire’s valuation is extremely low compared to businesses of similar quality and growth characteristics.
Berkshire’s current earnings are also meaningfully understated in the currently low interest rate environment as the company is earning a minimal return on its approximately $100 billion of excess cash which is invested in short dated, risk free assets.

Net of its excess cash, Berkshire currently trades at less than 12 times our estimate of earnings per share over the next year. Given the company’s strong competitive position, solid future growth prospects, large degree of excess cash and superlative track record of value creation, we believe that Berkshire should be valued at a large premium to its current valuation. Moreover, we believe an investor’s downside is limited due to the company’s fortress balance sheet, highly diversified business portfolio, and significant earnings contribution from recession-resistant businesses such as insurance and regulated utilities. Furthermore, we expect that certain recent positive developments will highlight and enhance the per-share value of Berkshire’s business over the next several years. First, we believe that it is likely that management will intelligently deploy some of its $100 billion of excess cash into value-enhancing large-scale business acquisitions and/or a greater than historical
amounts of share repurchases. We believe that this can be achieved because Mr. Buffett has built a deep bench of managerial and investment talent and a durable culture of character and performance.
Second, Berkshire created a new managerial structure in 2018 to elevate two long-time managers, Ajit Jain and Greg Abel who now directly oversee the insurance and non-insurance businesses. Both managers have a track record of improving operations under their purview. We expect this new management structure will empower them to enhance the operational performance of Berkshire’s businesses that have underperformed their peers. For example, Burlington Northern’s current operating profit margins are nearly 500 basis points below the average of its North American peers, and nearly 800 basis points below that of its best-in-class peer despite BNSF’s industry-leading scale. In Berkshire’s insurance subsidiaries, GEICO’s loss ratio is more than 800 basis points higher, and its underwriting profit margin about 400 basis points lower, than its closest competitor, Progressive Corp., and General Re’s expense ratio offers the potential for significant improvement based on our due diligence. We expect that Berkshire’s enviable competitive advantages and the positive underlying growth trends in most of its businesses will allow the company to sustainably grow its earnings at a high-single digit rate without any operational improvement at its larger businesses, and without including the benefit of the productive deployment of excess capital.

If Berkshire can improve its operations and intelligently deploy a substantial portion of its excess capital over time, we estimate that the company’s earnings per share should grow at a mid-teens’ compounded annual rate over the intermediate term. In light of the company’s currently depressed valuation, understated near-term earnings, and the potential for significant future earnings per share growth, we believe that Berkshire’s share price is likely to increase substantially over the
coming years.

Au final, il souligne le fait que la plupart des personnes considère Warren Buffett comme un gestionnaire de portefeuille ou fond d’investissement, alors qu’en réalité il a patiemment bâti un des plus grand conglomérat composé de business très lucratif. Il suffit de voir les articles qui démontrent la valeur dégagée par les business non côtés de BRK.

Bien qu’Ackman s’est brûlé les ailes à plusieurs reprises (dossier Valeant en long ou Herbalife en short), il reste néanmoins intéressant à suivre occasionnellement notamment sur son process.

En parallèle, on pourra noter Allan Mecham qui continue à se renforcer (soit 29% de portefeuille), consideré comme un baby Warren Buffett (même s’il semblerait que ce soit plus une malédiction qu’une bénédiction) dont j’apprécie le track record.

Bruce Berkowitz, dont on pourra être très critique sur ses décisions durant la dernière décennie,  a été actionnaire de BRK a plusieurs reprise et avait recrée une position dernièrement malgré le peu de fond disponible à cause de ses positions illiquide et redemption sales.

AMF : Actionnaire pour le compte de mes parents.

Dernière modification par Zera (04/09/2019 13h31)

Alors que Bill Ackman vient de constituer une ligne Berkshire Hathaway, un autre fonds, Wedgewood Partners, a liquidé sa ligne historique Berkshire Hathaway au 3e trimestre (Wedgewood détenait 578k titres BRK.B à la fin du 1er trimestre 2019, soit presque 120 millions $).

La lettre de Wedgewood à ses clients justifie cette décision par :
- un ralentissement des entreprises de Berkshire sensibles à la conjoncture économique
- un besoin de croissance externe pour les entreprises du secteur des utilities
- des "erreurs d’omission" sur Visa, Mastercard, Costco et Microsoft (toutes ces positions devraient être beaucoup plus grosses dans le portefeuille de Berkshire), malgré des avantages pour Buffett dans l’accès à l’information
- un manque de transparence sur les raisons pour garder autant de cash (s’agit-il de market timing ?)
- un manque de cohérence quant au niveau des valorisations (Buffett affirmant que les actions ne sont pas chères compte tenu du niveau actuel des taux, mais n’augmentant pas son exposition dans le même temps)
- des erreurs d’investissement (IBM, Kraft Heinz, Precision Castparts, Lubrizol)
- la quasi absence de rachats d’actions par Berkshire Hathaway

Ils affirment qu’ils ne reviendront éventuellement sur Berkshire Hathaway que s’il y a des rachats d’actions substantiels.

Wedgewood Partners, lettre aux clients, 3e trimestre 2019 a écrit :

We sold our multi decade-long position during the third quarter after first trimming the position during the second quarter this year. We went into some detail in our change of thesis on Berkshire in our last Client Letter.

In short, Berkshire’s industrially/economically sensitive businesses have slowed considerably over the course of 2019. Their utilities business (Berkshire Energy) needs continued acquisitions to restart utility growth. In addition, Warren Buffett’s cash hoard of +$125 billion continues to be a considerable impediment of growth, rather than our previous hard expectation of a valuable call option on opportunity in the hands of one of the most elite capital allocators extant. Further, the efficacy of putting this cash pile to work (plus +$25 billion in annual operating cash flows in Omaha) will be paramount if Berkshire Hathaway is to once again regain their former status as a meaningful grower over just baseline U.S. GDP growth. Thumb-sucking has not cut the Heinz mustard during the Great Bull Market of 2009 – 2019. The Great Bull could have been one helluva of an astounding career denouement for Messrs. Buffett and Munger.

In terms of errors of omission by Buffett & Co. over the past ten years, a few stocks stand out to us as considerable head scratcher errors that should have been in Buffett’s wheelhouse, and should have been huge winners for Berkshire shareholders. The first stocks are Mastercard and Visa. Buffett is incredibly well-versed in the payments processing industry given his half-century knowledge in longtime holding American Express. These two stocks should have been layups for Buffett. Mastercard and Visa have been massive wealth creators during the Great Bull Market.

Indeed, since the Great Bull started back on March 9, 2009, Berkshire Hathaway B stock is up a notable +269% through the recent ending 3rd quarter. Over the same time period, the S&P 500 Index is up +370%. Mastercard is up a stunning +1,521%. Visa is up a nearstunning +1,137%. Not all is lost, though. Buffett’s two CIO lieutenants currently own both stocks at a combined weight of just a thumb-sucking 1.50% of Berkshire’s current equity portfolio. The current combined weighting should be 15.00%!.

Two other layups are Costco and Microsoft. Buffett has had at his disposal unrivaled expert tutelage on each company in his hind pocket for years – but to no shareholder avail. Charlie Munger has been a director at Costco for 22 years. Costco’s stock Great Bull gain is +522%. Once again, not all is lost. Buffett’s lieutenants currently own a whooping 0.55% position in Costco.

More numbing still is Microsoft. Buffett first met Bill Gates nearly 30 years ago. They became fast best friends. In 2004, Gates joined Berkshire’s board of directors. Buffett probably spends more time talking with Gates (Gates Foundation and bridge playing too) each day than he does with key Berkshire vice chairman employees Ajit Jain and Greg Abel. Buffett has long (and proudly) proffered his opinion that “technology” companies are far outside his “circle of competence.” His more recent multibillion foray into IBM and Apple belie his longheld assertion. In our view, if Buffett can endeavor to figure out the business models of both Apple and IBM enough to pour multibillions in stock purchases, then figuring out Microsoft’s business model under sensai Gates should have been Remedial Technology 101. Microsoft’s stock Great Bull Market gain is +657%.

A final lament, if Berkshire’s current Breaking Bad-style cash hoard represents stock market timing, then shareholder-partners deserve to be informed of as much.

On this capital allocation front we have growing concerns. Buffett & Co. have repeatedly stated their considerable disadvantage in competing against private equity (with levered billions in tow) for acquisitions, yet Buffett & Co. continue to play this game – very un-Buffettlike, in our opinion. Buffett has also repeatedly offered his opinion for a few years now that if interest rates would stay at their current low levels then stocks aren’t (weren’t) expensive, yet Berkshire’s equity portfolio on a net basis to total corporate assets hasn’t really grown that much. (Our portfolio does though share Buffett’s success in his outsized Apple position.)

Last, despite Buffett’s share-buyback tutorials – and our perceived signaling – over the past few years that he is open to large, accretive share repurchases, little has been done on this front as well. (Buffett seems to abhor returning “capital paint” to shareholders while his Berkshire canvas is still “in paint.”) Net-net, capital allocation needs to improve dramatically in order to reaccelerate the current stasis of middling, GDP-like growth. Recent billions in capital investments in notable mistakes such as IBM, Lubrizol, Precision Castparts and Kraft do not inspire confidence that Buffett & Co. are still at the top of their game. Any future conviction of ours in Berkshire Hathaway shares will closely mirror that of Buffett’s own conviction in Berkshire share buybacks.

AMF : Je viens de constituer une petite ligne Berkshire Hathaway. Je pense augmenter sa taille graduellement, mais sans me presser. Je n’ai pas de forte conviction sur Berkshire Hathaway.

Dernière modification par Scipion8 (22/10/2019 15h42)

arthur450 a écrit :

Pour ceux qui lisent l’anglais et qui ont un peu de temps, j’ai trouvé une analyse très détaillée (et trèèèèèsss longue) de Berkshire avec une valuation utilisant différentes méthodes.

Je me permets:
(13/18) Berkshire Hathaway : le conglomérat de Warren Buffett
(15/18) Berkshire Hathaway : le conglomérat de Warren Buffett
mais compte tenu de la richesse de ces lettres, une nouvelle recommandation ne peut pas faire de mal (dont pour moi).

Dernière modification par simplicitaire (11/02/2020 12h51)