Buffett/Berkshire - general news

[BiggieCheese]

Thanks again gfp!!!

[jbwent63]

I apologize if this has already been covered, I didn't scroll back...

I was thinking about the Pilot acquisition in re-reading the Q2 10-Q. BRK paid $8.2 B for about 41%, valuing the whole enterprise at about $20B, yet the earnings were only $186M for three months (pre-tax) and $322M for 5 months. Assuming no seasonality, pre-tax of $800M yields a pre-tax multiple of about 25X. I own ATD and it doesn't trade at that multiple. What am I missing? Thanks.

[gfp]

3 minutes ago, jbwent63 said:

I apologize if this has already been covered, I didn't scroll back...

I was thinking about the Pilot acquisition in re-reading the Q2 10-Q. BRK paid $8.2 B for about 41%, valuing the whole enterprise at about $20B, yet the earnings were only $186M for three months (pre-tax) and $322M for 5 months. Assuming no seasonality, pre-tax of $800M yields a pre-tax multiple of about 25X. I own ATD and it doesn't trade at that multiple. What am I missing? Thanks.

 

Off the top of my head, the purchase price was based on multiples of prior year's earnings, which were much higher.  Berkshire shut down some lines of business after acquiring the company.  There was also a change in upper management.  Another very big factor is purchase/acquisition accounting related amortization that kicks in in a major way as soon as Berkshire bought the company and wrote up the value to the implied purchase price.

 

Here's a blurb on the reduced reported profits -

"

Pilot’s revenues and earnings are highly dependent on fuel volumes, prices and margins. Revenues for the second quarter of 2023

and the five months ending June 30, 2023 were $14.8 billion and $24.3 billion, respectively.

Pilot’s pre-tax earnings for the second quarter of 2023 and the five months ending June 30, 2023 were $186 million and $322 million, respectively. Operating and other expenses include depreciation and amortization expense of $243 million in the second quarter of 2023 and $411 million in the five months ending June 30, 2023, a significant portion of which derives from property, plant and equipment and finite-lived intangible asset fair value remeasurements in connection with our application of the acquisition accounting method in 2023."

[Munger_Disciple]

1 hour ago, jbwent63 said:

I apologize if this has already been covered, I didn't scroll back...

I was thinking about the Pilot acquisition in re-reading the Q2 10-Q. BRK paid $8.2 B for about 41%, valuing the whole enterprise at about $20B, yet the earnings were only $186M for three months (pre-tax) and $322M for 5 months. Assuming no seasonality, pre-tax of $800M yields a pre-tax multiple of about 25X. I own ATD and it doesn't trade at that multiple. What am I missing? Thanks.

 

Yes, Berkshire overpaid for the 41% of Pilot they acquired in 2023. As @gfp pointed out, it was based on a formula (of prior years earnings which were artificially high due to COVID effects) so Berkshire's hands were tied. IIRC Buffett hinted at this during the 2023 annual meeting by saying they should have bought the whole company when they purchased their initial stake (but couldn't). 

 

Edited August 26, 2023 by Munger_Disciple

[UK]

https://www.wsj.com/articles/north-dakota-bnsf-railway-friends-of-the-rail-bridge-lawsuit-94d45e70?mod=hp_opin_pos_2

[Munger_Disciple]

Bloomberg article on Berkshire's exposure to FL storms: 

 

https://www.bloomberg.com/news/articles/2023-08-29/buffett-s-bet-on-mild-florida-storm-season-faces-test-in-idalia?srnd=premium#xj4y7vzkg

[longlake95]

6 minutes ago, Munger_Disciple said:

Bloomberg article on Berkshire's exposure to FL storms: 

 

https://www.bloomberg.com/news/articles/2023-08-29/buffett-s-bet-on-mild-florida-storm-season-faces-test-in-idalia?srnd=premium#xj4y7vzkg

seems to be behind a paywall...

[Munger_Disciple]

Berkshire Hathaway Inc. bet big earlier this year that Florida’s reinsurance market would deliver huge premiums with minimal losses. Hurricane Idalia is about to offer a test of that calculus, with months of potential storms left this season.

Warren Buffett’s firm ramped up its reinsurance exposure to the state, looking to take advantage of rising prices. The move has left the firm exposed to as much as $15 billion of losses in the event of a major storm, Berkshire’s head of insurance said in May, while it could lead to several billions in gains.

“We have a very unbalanced portfolio,” Ajit Jain, vice chairman of insurance operations, said at the conglomerate’s May investor event. “What that means is, if there is a big hurricane in Florida, we will have a very substantial loss.”

A representative for the company didn’t respond to an emailed request for comment on Tuesday.

The riskiness of the approach is coming into focus now as Hurricane Idalia bears down on the state’s Gulf Coast, where it’s expected to make landfall Wednesday. Water temperatures are warm enough to set the storm up to intensify further before then, however the sense is that it still won’t deliver major losses for insurers, and thus won’t be a big blow for Berkshire’s reinsurance business.

The Atlantic hurricane season runs through November. Depending on its path, Idalia is forecast to cause a fraction of the cost Hurricane Ian inflicted when it struck the state in September as a Category 4 storm, killing at least 150 people and causing more than $112 billion in damage.

“I am skeptical that this will impact them much,” said Matthew Palazola, an analyst at Bloomberg Intelligence. “This event is not what they were describing when they were talking about a worst case.”

Reinsurance capital has been hard to come by in Florida due to the severity of losses from insurance fraud in the state. When policies came up for renewal on April 1, “prices zoomed up again” and created a window for Berkshire to deploy capital, Jain said at the event in May.

[backtothebeach]

54 minutes ago, longlake95 said:

seems to be behind a paywall...

You can see almost any paywalled content via this page:

https://archive.ph/

 

Just paste the link in the blue box. When you paste, skip the part of the URL behind the ? (if any), which is just session info from the OP.

 

https://www.bloomberg.com/news/articles/2023-08-29/buffett-s-bet-on-mild-florida-storm-season-faces-test-in-idalia
 

Edited August 29, 2023 by backtothebeach

[longlake95]

Thanks beach, I tried that, didn’t seem to work. I’ll keep trying. Thanks 

[Munger_Disciple]

10 minutes ago, longlake95 said:

Thanks beach, I tried that, didn’t seem to work. I’ll keep trying. Thanks 

 
I just posted the whole article (see my previous post). 

[longlake95]

20 minutes ago, Munger_Disciple said:

 
I just posted the whole article (see my previous post). 

Yes, got it. Thanks. 

[Spooky]

Somewhat off topic -  I've been thinking lately about something that Buffett said at the AGM with respect to the World War II period and the US federal government re-organizing the whole economy and government under direction from someone from Goldman Sachs to build its war time production. Does anyone have any good books or resources about this time period and the changes to the political system and economy that took place?

[gfp]

1 hour ago, Spooky said:

Somewhat off topic -  I've been thinking lately about something that Buffett said at the AGM with respect to the World War II period and the US federal government re-organizing the whole economy and government under direction from someone from Goldman Sachs to build its war time production. Does anyone have any good books or resources about this time period and the changes to the political system and economy that took place?

 

I assume you are referencing Sidney Weinberg.  I'm not sure of what the best books are on this period or his influence but I'm sure if you google his name you can find a bunch of articles about him and several histories of Goldman Sachs.  One of the best monetary histories of the United States is this one, but it's probably not the book you are looking for in your question:

https://www.amazon.com/dp/0691003548/?coliid=I255V4DNCMU3UD&colid=1UBQAXGQNN2BF&psc=1&ref_=list_c_wl_lv_ov_lig_dp_it

[Spooky]

Thanks @gfp, I'll do some more digging. I've actually been wanting to read that Milton Friedman book as well!

[sholland]

 

Quote

8 hours ago, Spooky said:

Somewhat off topic -  I've been thinking lately about something that Buffett said at the AGM with respect to the World War II period and the US federal government re-organizing the whole economy and government under direction from someone from Goldman Sachs to build its war time production. Does anyone have any good books or resources about this time period and the changes to the political system and economy that took place?

 

Read Freedom’s Forge
https://www.amazon.com/Freedoms-Forge-American-Business-Produced/dp/0812982045/ref=asc_df_0812982045/?tag=hyprod-20&linkCode=df0&hvadid=312243616995&hvpos=&hvnetw=g&hvrand=6544409871145515635&hvpone=&hvptwo=&hvqmt=&hvdev=c&hvdvcmdl=&hvlocint=&hvlocphy=9024305&hvtargid=pla-564515663945&psc=1

[Cigarbutt]

On 8/31/2023 at 12:58 PM, Spooky said:

Somewhat off topic -  I've been thinking lately about something that Buffett said at the AGM with respect to the World War II period and the US federal government re-organizing the whole economy and government under direction from someone from Goldman Sachs to build its war time production. Does anyone have any good books or resources about this time period and the changes to the political system and economy that took place?

Biased and potentially misleading addition on my part here.

Off-topic but quite interesting and relevant? to BRK? others?

On a personal level, one of the most interesting aspects of the period is how war efforts were financed (the war was publicly financed) but this is a 'story' for another day.

-----

Freedom's Forge is an interesting reference but is quite uni-dimensional and focuses mostly on some aspects of corporate contribution.

For a more balanced review:

For a more diverse view with a focus on individuals (the book is based on the underlying assumption that the 'secret sauce' (some kind of semi-collaborative context balancing key participants) was in place):

Another useful reference (most likely to meet your limited-time-availability expectations) is:

Mobilizing U.S. Industry in World War II: Myth and Reality (ethz.ch)

The book describes how the US process to get involved in the war was 'messy' but demonstrates that the US was able to eventually get ahead while balancing military and civilian needs. The book describes the 'team' effort. It goes through the various institutions (War Production Board, Office of War Mobilization etc) that were (semi-strategically) put in place and the people who led the team efforts (Sidney Weinberg was a player in the team; it was a time when public office was held in high esteem..). 

And now here 'we' are and this too shall pass.

 

 

[gfp]

$3.3 Billion cash deal for Cove Point closed today.  Greg Abel continuing to put his mark on the company.  This is what they used the proceeds from the partial BYD share sale for.

 

https://www.businesswire.com/news/home/20230901350178/en/Berkshire-Hathaway-Energy-Completes-Acquisition-of-Additional-Stake-in-Cove-Point-LNG

[ValueMaven]

Yea - this is a great asset for sure.  Would have love if they bought Oncor several years back ... but BHE is really turning into a componding jewel within Berkshire.  Between the D pipeline assets, these LNG assets plus natural growth capex - BHE is a growth engine for sure.  So glad Charlie finally let BYD go.  What an epic investment

 

BTW - at some point over the next 12-24 months expect BIP to try and monitize its stake in Clove Point (asset rotation) -- so its likely over the next few years BHE will own 100% of this asset.  Wow.

Edited September 2, 2023 by ValueMaven

[NnnnotSoSmart]

15 hours ago, gfp said:

$3.3 Billion cash deal for Cove Point closed today.  Greg Abel continuing to put his mark on the company.  This is what they used the proceeds from the partial BYD share sale for.

 

https://www.businesswire.com/news/home/20230901350178/en/Berkshire-Hathaway-Energy-Completes-Acquisition-of-Additional-Stake-in-Cove-Point-LNG

On a related note, OXY owns 39% in a company called Net Power (NPWR). By virtue of BRK's ~25%+ position in OXY, Berkshire now owns ~ 10% of NPWR.   

 

NPWR has developed technology to produce "zero emission" power using natural gas as fuel.  The first commercial scale installation will be to supply power for OXY's first direct air capture (DAC) unit in west Texas.
https://netpower.com/press-releases/net-power-announces-its-first-utility-scale-clean-energy-power-plant-integrated-with-co2-sequestration/

NPWR IPO'd in June.
https://www.bloomberg.com/press-releases/2023-06-08/net-power-completes-merger-with-rice-acquisition-corp-ii-to-accelerate-clean-natural-gas-power-generation

 

More detailed presentation on the company and technology here:

https://d1io3yog0oux5.cloudfront.net/_1658a8372bf11a36555133c52282b2c5/netpower/db/3583/33173/pdf/netpower+analyst+day+presentation.pdf

 

According to the slides the technology has a huge addressable market replacing old gas fired power generation globally. No doubt Greg Abel watching at this one for application at BHE.  Could provide "clean" back up for all BHE's intermittent wind installations.
 

[gfp]

1 hour ago, ValueMaven said:

So glad Charlie finally let BYD go.  What an epic investment

 

FWIW, Berkshire Hathaway Energy still owns 98.6 million BYD (hk:1211) shares with a current value of $3 Billion USD.

[UK]

https://www.wsj.com/business/energy-oil/green-energy-coal-country-875d52fa

[Cigarbutt]

27 minutes ago, UK said:

https://www.wsj.com/business/energy-oil/green-energy-coal-country-875d52fa

Capital is there, Berkshire is there but, under present circumstances (various 'incentives'...), progress will be slow.

Somehow, progress will become more rapid eventually and this is related to the WW2 reconfiguration question mentioned above thread. In any case, BRK will likely be ready.

Buffett on clean energy push: This country should be ahead of where it is (cnbc.com)

Edited September 4, 2023 by Cigarbutt
spelling

[KPO]

https://archive.ph/D0KXm
 

Happened upon this article about the other famous Buffett and it states that Berkshire has ownership in Margaritaville Enterprises, the holding company for most of the Jimmy Buffett related businesses. Was I the only one that didn’t know this? I wonder if it’s even true? 

[Parsad]

1 hour ago, KPO said:

https://archive.ph/D0KXm
 

Happened upon this article about the other famous Buffett and it states that Berkshire has ownership in Margaritaville Enterprises, the holding company for most of the Jimmy Buffett related businesses. Was I the only one that didn’t know this? I wonder if it’s even true? 

 

Jimmy Buffett was sick for a few years.  He's also been a Berkshire shareholder for many, many years.  I would not be surprised that in the last few years, he may have arranged for the possibility of his demise and how it would affect Margaritaville.  

 

Jimmy Buffett knew what a great home Berkshire was for businesses.  His family probably has little interest in running the company.  It may be that he was doing some succession planning and Berkshire will play a role in that.  We shall find out fairly soon!  Cheers!