Author Topic: Buffett/Berkshire - general news  (Read 488837 times)

jay21

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Re: Buffett/Berkshire - general news
« Reply #50 on: November 10, 2014, 02:25:52 PM »
The article says the 10-Q notes that $15 billion in dividends have been sent to Berkshire since the acquisition.   Does anyone know where that is in the 10-Q?  I personally wasn't a big fan of the purchase back then because it was so capital intensive.  If I understand things correctly BNSF still spends more on capex than depreciation, thus not all of its earnings can be sent to BRK.   If I recall correctly BNSF debt was $10 billion and has increased by nearly $10 billion since the acquisition. 

Any discussion of the merits of the BNSF deal should compare it to alternatives which is hard to do.  The S&P500 has doubled over the five year time frame.  Since shares were issued in the deal it diluted shareholder ownership in existing BRK businesses.

     

BNSF files. Check there as it is a line item in the CF statement. IIRC yes, a good chunk of the dividends appear to be debt recaps but thats driven by their increased earning power. I am sure you can lever it more aggressively (just like almost any other BRK business) if he needs the cash (i.e. the debt is entirely appropriate and he isnt sucking the business dry).

Agree on the dilution. Buffett should be forced to buyback the dilution  ;)

Edit: http://www.bnsf.com/about-bnsf/financial-information/form-10-k-filings/pdf/10k-llc-2013.pdf

Distributions 2011: 3500. 2012: 3750. 2013: 4000
« Last Edit: November 10, 2014, 02:28:16 PM by jay21 »
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Tim Eriksen

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Re: Buffett/Berkshire - general news
« Reply #51 on: November 10, 2014, 03:57:15 PM »
Thanks jay,
To me that still would mean 10 billion of the 15 billion was from BNSF taking on more debt.  So I exclude that since it is more like return of capital than return on capital.  To pay 34 billion and only have it throw off 5 billion over the last 4 years doesn't seem impressive to me.  I am not saying that BNSF is not worth more today than when BRK purchased it.  Clearly it is.  I just didn't see high free cash flow then or now.  It is better than a utility, but not as good as a capital light business.

It really makes me wonder at times if Buffett is focused on free cash flow or reported earnings.   BNSF, MidAmerican and Net Jets (things purchased in the last 15 years) are not the same quality  of businesses as Geico, WaPost, See's, Coke, AmEx, Wells, Gillette, etc.(businesses or stocks of the 70's through 90's).   

   
« Last Edit: November 10, 2014, 04:03:15 PM by Tim Eriksen »

jay21

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Re: Buffett/Berkshire - general news
« Reply #52 on: November 10, 2014, 05:11:05 PM »
I dont fully agree. Obviously if the distributions were fully FCF than it would be better than debt. But if you look at their debt/ebitda metric, they have kept it constant, not increased. So they are just maintaining their capital structure. Its not like he's putting on excessive leverage here, if anything BRK underlevers their assets (like every single asset they own, its crazy they generate the returns they do running with so much cash and little leverage).

See this presentation: http://www.bnsf.com/about-bnsf/financial-information/fixed-income-investors/pdf/fixed-income-investor-presentation-1-quarter-2014.pdf

Also, when I looked at their reported maintenance capex, I believe it approximated D&A. Their FCF returns look strong to me.

If you haven't, I would take a look at the BNSF thread in the subforum: http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/bnsf-and-midamerican/

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ajc

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Re: Buffett/Berkshire - general news
« Reply #53 on: November 11, 2014, 05:34:14 AM »

"Having identified a source of float in the capital intensive assets, Buffett's next trick is to make it grow thereby increasing its value.
It is therefore no surprise that large components of Berkshires capital expenditures are being directed towards BNSF and MidAmerican - the two assets we identified above as being long-term DTL float generators.

Capex in BNSF/MidAmerican has a number of impacts:

 - It increases the level of fixed assets in long-term DTL float generators
 - Capex above depreciation will cause the DTL float to grow
 - As new capital depreciates quicker than existing capital given accelerated tax depreciation it creates more per dollar DTL float than the existing book.
 - Given the above, ever rising amounts of new capital expenditures will make the DTL float start to balloon (or should i say float?) upward"


http://seekingalpha.com/article/2428045-how-buffett-is-changing-the-future-of-berkshires-float-from-insurance-to-uncle-sam



Tim Eriksen

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Re: Buffett/Berkshire - general news
« Reply #54 on: November 11, 2014, 08:55:53 AM »

"Having identified a source of float in the capital intensive assets, Buffett's next trick is to make it grow thereby increasing its value.
It is therefore no surprise that large components of Berkshires capital expenditures are being directed towards BNSF and MidAmerican - the two assets we identified above as being long-term DTL float generators.

Capex in BNSF/MidAmerican has a number of impacts:

 - It increases the level of fixed assets in long-term DTL float generators
 - Capex above depreciation will cause the DTL float to grow
 - As new capital depreciates quicker than existing capital given accelerated tax depreciation it creates more per dollar DTL float than the existing book.
 - Given the above, ever rising amounts of new capital expenditures will make the DTL float start to balloon (or should i say float?) upward"


http://seekingalpha.com/article/2428045-how-buffett-is-changing-the-future-of-berkshires-float-from-insurance-to-uncle-sam

Maybe my point is being missed.  Let me try another way.  DTL (deferred tax liability) float from accelerated depreciation is not as good as DTL float from unrealized gains, which is not as good as float from insurance.  Increasing DTL float from accelerated depreciation requires substantial capital expenditures (part of which is recouped from tax benefits).  Increasing DTL float from unrealized gains does not require any capital expenditures even though it does not generate any cash to invest.  Thus it is better.  Insurance float does not require  meaningful capital expenditures and it generates actual cash that can be invested.  It is by far the best of the three.

It seems to me that Buffett is moving down in terms of quality of float.         

longinvestor

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Re: Buffett/Berkshire - general news
« Reply #55 on: November 11, 2014, 10:28:44 AM »

"Having identified a source of float in the capital intensive assets, Buffett's next trick is to make it grow thereby increasing its value.
It is therefore no surprise that large components of Berkshires capital expenditures are being directed towards BNSF and MidAmerican - the two assets we identified above as being long-term DTL float generators.

Capex in BNSF/MidAmerican has a number of impacts:

 - It increases the level of fixed assets in long-term DTL float generators
 - Capex above depreciation will cause the DTL float to grow
 - As new capital depreciates quicker than existing capital given accelerated tax depreciation it creates more per dollar DTL float than the existing book.
 - Given the above, ever rising amounts of new capital expenditures will make the DTL float start to balloon (or should i say float?) upward"


http://seekingalpha.com/article/2428045-how-buffett-is-changing-the-future-of-berkshires-float-from-insurance-to-uncle-sam

Maybe my point is being missed.  Let me try another way.  DTL (deferred tax liability) float from accelerated depreciation is not as good as DTL float from unrealized gains, which is not as good as float from insurance.  Increasing DTL float from accelerated depreciation requires substantial capital expenditures (part of which is recouped from tax benefits).  Increasing DTL float from unrealized gains does not require any capital expenditures even though it does not generate any cash to invest.  Thus it is better.  Insurance float does not require  meaningful capital expenditures and it generates actual cash that can be invested.  It is by far the best of the three.

It seems to me that Buffett is moving down in terms of quality of float.      

Actually the reverse order is true when it comes to control and time frame the float is held. Captive capital allocation for "as far as the eye can see" and a shareholder base willing to go along with 100% retained earnings are wonderful.  Time will tell if the quality of float actually got better.

fareastwarriors

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Re: Buffett/Berkshire - general news
« Reply #56 on: November 11, 2014, 01:06:16 PM »
Is the author reading this forum?
 :o


Buffett, Not a Fan of Capital-Heavy Firms, Spends $12B on Them in 2014
http://blogs.wsj.com/moneybeat/2014/11/11/buffett-not-a-fan-of-capital-heavy-firms-spends-12b-on-them-in-2014/

Palantir

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Re: Buffett/Berkshire - general news
« Reply #57 on: November 13, 2014, 06:40:11 AM »
Anybody selling BRK? Looks to have hit 1.5xBV, which seems to be many people's estimate of FV...
My Portfolio: AMZN, PAGP, FSLR, OKE, PYPL, RHT, MSFT

longinvestor

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Re: Buffett/Berkshire - general news
« Reply #58 on: December 01, 2014, 06:06:24 AM »

gfp

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Re: Buffett/Berkshire - general news
« Reply #59 on: December 01, 2014, 06:24:39 AM »
It's the second bolt-on at Lubrizol in a week.  They are going to combine today's two companies with the PSX sub they swapped for.

Here is last week's LZ bolt-on - probably a couple hundred million but not disclosed:

http://newscenter.lubrizol.com/phoenix.zhtml?c=250972&p=irol-newsArticle&ID=1992404

http://www.bloomberg.com/news/2014-12-01/berkshire-to-buy-weatherford-units-for-at-least-750-million-1-.html?cmpid=yhoo

Operating units doing their part, billion at a time.