Value Investing Intrinsic Value Cheatsheet |
- Intrinsic Value Cheatsheet
- Lessons From 11 Years of Operating: Mestek, Inc. (MCCK)
- Howard Marks on Investing During Coronavirus
- A quick intrinsic value estimate of Berkshire Hathaway
- Which industries/ areas are you seeing deep value in?
- Crescat Capital - Blood in the Streets
- BDC Baby Bonds [A long thesis write-up on CSWCL]
- SEC and Barry Minkow 1987 case
- The Mystery of the Profitable Energy Marks
| Posted: 22 Mar 2020 08:29 PM PDT |
| Lessons From 11 Years of Operating: Mestek, Inc. (MCCK) Posted: 23 Mar 2020 04:52 AM PDT |
| Howard Marks on Investing During Coronavirus Posted: 22 Mar 2020 07:24 AM PDT |
| A quick intrinsic value estimate of Berkshire Hathaway Posted: 22 Mar 2020 10:43 AM PDT This morning I listened to the most recent episode of The Investor's Podcast, on which they mentioned the drop in price of BRK. They said they would cover an intrinsic value calculation on next week's episode, so I wanted to take a quick stab myself here and see what we get. This is just for me to enhance my own valuation ability and to start a conversation, it certainly should not be considered as advice for others. As Warren Buffett himself has said, one should value BRK by looking at the operating earnings of the businesses it owns as well as the after-tax profit that would be made from a sale of its equity portfolio. Additionally, BRK has significant excess cash. Operating earnings (excluding Heinz) Revenue=$255bn Costs=$226bn Tax rate=21% Earnings=$22.8bn +non-Heinz equity method earnings=$683m Earnings=$23.5bn Investments (including Heinz) At cost=$110bn At year-end=$258.5bn Today (assuming 15% unknown shares follow S&P YTD trends) Est. value=$166bn Tax on sale=21% * gains of $56bn=$11.8bn Value to shareholders=$155bn Excess cash Buffett stated that they won't buyback shares if it would leave them with less than $20bn in cash. Let's assume that number represents the minimum they need to operate. Cash, cash equivalents & fixed income=$146.7bn -$20bn operating cash Excess cash=$126.7bn If we value the after tax operating earnings at 10X, we get an intrinsic value for BRK of $493bn, comprising: Earnings power=$235bn Excess cash=$127bn Portfolio value=$155bn At a market cap of $418bn, this leaves us with a discount of 19%. An alternative lens through which we can view the valuation is to assume that the market values BRK's equity positions and cash at market rate (minus tax on the capital gains of equities). With that assumption, operating earnings are currently available for sale at a PE multiple of 5.8. Problems with this approach We're not following Buffett's proposed owner earnings approach. If maintenance capex is significantly higher than the stated depreciation then we would be overstating the value. Without trying to appraise each of the wholly-owned companies individually, it is hard to know what they would sell for, as such a 10X multiple may be the wrong metric to use here. In reality, BRK couldn't exit out of their equity portfolio without severely damaging the value of the equities they hold in the process. Therefore, if we or BRK believe that Kraft Heinz or any other of their equities will diminish in the future, we would expect the intrinsic value to suffer as a result. Outcome At this point in time, I would seriously consider purchasing stock in BRK if the share price dropped by around 10-15%, (BRK.B price of around $155 or below). My next step will be to continue looking at other companies for even greater discounts, whilst also working to generate a better valuation multiple for BRK's operating businesses, looking for any discrepancies between reported earnings and owner earnings that would significantly alter this valuation and aiming to generate my own intrinsic value assumption for some of BRK's bigger holdings. I'm keen to receive all (preferably constructive) criticism on this approach and to hear your own valuations of the company. [link] [comments]  |
| Which industries/ areas are you seeing deep value in? Posted: 22 Mar 2020 11:58 AM PDT |
| Crescat Capital - Blood in the Streets Posted: 22 Mar 2020 10:31 AM PDT |
| BDC Baby Bonds [A long thesis write-up on CSWCL] Posted: 22 Mar 2020 03:37 PM PDT I've been looking at baby bonds for the past week or two in this sell-off... thought I'd post my thoughts below. Part of a write-up I submitted in a VIC application. While this focuses on one specific security, the sell-off has provided opportunities for a number of BDCs that have good asset coverage and higher quality portfolios. Capital Southwest is a business development company ("BDC") that focuses on lower middle market businesses with <$15m of EBITDA. I will not go into detail on BDCs or how they work, as this is information that is readily available online. The business is publicly traded ("CSWC") and has publicly traded baby bonds ("CSWCL"). The baby bonds, which are used in conjunction with a revolver to fund investments, have a 5.95% coupon and mature in December 2022. The broad market sell-off in recent weeks has provided numerous opportunities across sectors, and one interesting space has been yield-driven investments such as BDCs. Not only have the equity markets in this space fallen off in a flight to safety, but so too have the publicly traded bonds. The high level thinking makes sense: 1. investors in fixed income funds and ETFs are selling, creating outflows and mandatory redemptions; 2. yield-based investors feel the go-forward dividends in BDCs are unsustainable; 3. BDCs are often exposed to riskier, smaller businesses that are less likely to survive the coming months. Numerous BDCs have seen their baby bonds drop into the $15-20 range ($25 par), inferring an impaired expected recovery value between 60 and 80 cents on the dollar. For more levered BDCs, the valuation is reasonable after factoring in a 20-30% haircut to the portfolio fair value and performing a waterfall analysis. But for conservative balance sheets, such as Capital Southwest's, the sell-off is overstated. As of 12/31/19, Capital Southwest has $500m of investments (excluding its JV with Main Street) and $273m of total long-term debt, for an asset coverage of over 180%. Further, it's a high quality portfolio: 74% of its assets are first lien paper and the industry exposure to coronavirus high impact areas is limited. Consumer industries, restaurants and energy represent 14% of the book. Most of its portfolio is comprised of business services, healthcare services, media, software and financial services, which are more insulated from consumer-related cyclicality. The capital structure is comprised of a $124m senior revolver and two subordinated baby bond issuances ($76m 2022 and $73m 2024). So the crux of the analysis is this: in a performing market, these bonds will be valued at par. This clearly is not a performing market, but let's look under the hood. As a debt investor by nature, conservatism is the name of the game. So let's look at a few scenarios:
So in short, we are looking at a 6% coupon with 25% additional capital upside over 2.5 years. That's a 16% IRR with what I believe is minimal downside based on the cases outlined above. It would take significant fair value erosion (>50%) to the underlying investment portfolio for a loss of capital to baby bond holders. Risk Areas:
Catalysts:
[link] [comments]  |
| SEC and Barry Minkow 1987 case Posted: 22 Mar 2020 03:27 PM PDT Can anyone tell me where I can find the specific rules that Barry Minkow broke in 1987 in his (ponzi?) scheme....I have dug through old WSJ and NYT articles, but their information is not specific. It just says he was accused of 54 counts of securities fraud, mail fraud, etc. I am taking Securities Regulation class and I need to know exactly what statutes, e.g. 10b5, he was charged with violating.. Separately, if anyone knows what the legal ramifications of his case were, that would be help a lot. So far, all I can see is that drew a heightened awareness to this sort of behavior, but nothing specific. I emailed [publicinfo@sec.gov](mailto:publicinfo@sec.gov) repeatedly over the last several months and weeks asking for the actual case records, at least those that are public, but they are not responding at all. Much appreciated if you can help. [link] [comments]  |
| The Mystery of the Profitable Energy Marks Posted: 22 Mar 2020 07:25 AM PDT |
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