Monday, April 13, 2099

Valuation of all stocks listed in Holland AEX All Share AAX: Benjamin Graham Defensive Investor method

Warren Buffett: "Well, start with the A’s." Click on the companies below for Graham Evaluation:

Aalberts Industries AEX:AALB, NL0000852564
ABN AMRO AEX:ABN48 NL0011540547
Accell Group AEX:ACCEL NL0009767532
Ahold Koninklijke AEX:AH, NL0010672325
Accsys Technologies AEX:AXS, GB00BQQFX454: Too small, making a loss, but growing sales.
Aegon AEX:AGN, NL0000303709
AFC AJAX AEX:AJAX NL0000018034
Air France-KLM PSE:AF, FR0000031122
Akzo Nobel AEX:AKZA NL0000009132
Altice AEX:ATC, NL0011333752
AMG Advanced Metallurgical Group NV AMG:AEX NL0000888691
Amsterdam Commodities AEX:ACOMO NL0000313286
AND International Publishers
Apollo Alternative Assets AEX:AAA1, GB00B15Y0C52
Aperam AEX:APAM LU0569974404
Arcadis AEX:ARCAD, NL0006237562
ArcelorMittal AEX:MT, LU0323134006
ASM International AEX:ASM NL0000334118 BUY under €35
ASML Holding NV
ASR Nederland a buy under 30 Euros?
Batenburg Techniek
BAM Koninklijke Groep 
Basic Fit ?! don't buy above 7,50
BE Semiconductor Industries AEX:BESI, NL0000339760
Beter Bed Holding AEX:BBED, NL0000339703

Berkshire Hathway run by Warren Buffett

Bever Holding: Small real estate fund, neg. cash flow, selling at 3,8 under 5,5 Euro book value. Plans to make money in near future. Buy?
BinckBank buy under 3 Euros
Boskalis Westminster Koninklijke AEX:BOKA, NL0000852580
Boussard & Gavaudan Holding Ltd. An expensive hedge fund.
Brill, Koninklijke kopen onder 22 Euro
Brunel International AEX: BRNL, NL0010776944
Coca-Cola European Partners
Corbion AEX:CRBN, NL0010583399
Core Laboratories AEX:CLB, NL0000200384
Ctac buy under €3,20
Curetis loss making biotech company = too difficult pile. Price fell from 7,14 to 5 June 2016-June 2017
Docdata: Now a  holding for the https://www.ease2.com/ Internet of Cars app, under construction.
Delta Lloyd now part of NN Group.
DPA Groep N.V. buy at €1,4
DSM Koninklijke don't buy over 40 Euros
Esperite: Stem Cell Bank losing money hand over fist. Price fell from 3 to 0,70 June 2016-17
Eurocastle NPL Non Performing Loans in Italy 10% dividend FFO Funds From Operations pretty good, selling at 8,55 which is 7% under Net Asset Value
Eurocommercial Properties: Buy under 40?
Euronext buy at €30
Fagron impairments
ForFarmers a Graham Defensive Pick up to €6,50
Flow Traders outside my circle of competence, seems like a buy under €30
Fugro's Graham Value has decreased, buy at €10?
Gemalto buy under €35
Galapagos is a clinical-stage biotechnology company, not profitable (yet?).
GrandVision : Don't buy over €20
Groothandelsgebouwen N.V. buy under €50
HAL Trust
Headfirst Source part of Value8 holding. Figures? Earnings 2017 before Amortization 0,30?
Heijmans losing money check August 17 2017
Heineken, buy under 60?
Holland Colours buy under €70
Hunter Douglas, good balance sheet, buy if under €70
Hydratec buy at 55 sell at 65
ICT Group NV buy under 9 Euros
IEX Group Sales 2m, losses 600k, not for the defensive investor
IMCD buy under 35 Euros
ING Bank buy under 15 Euros
Intertrust too little history: Earnings per share 2016 Euro 1,3 x 15 = 19,5 Euros: Price = 19,86 Euros
Inverko used to be Newconomy, is for sale, garbage (disposal) Price = 0,60 Euros
Kardan made a loss 5 out of the last 5 years including 2016 and first Q 2017. Almost bankrupt?
KAS BANK cheap now under 10 Euros ?
Kendrion buy at 25 Euros
Kiadis Pharma bleeder, not for Defensive Investor, no sales
Klepierre French Retail Real Estate 5% dividend
KPN not for the Graham Defensive Investor
Porceleyne Fles Koninklijke Check under 5 Euros.
K. VolkerWessels check after August 31st, 2017
K. VOPAK buy under 35
K. Wessanen 
K. VolkerWessels
Lavide taking over childcare company sept 2017 
Lucas Bols buy under €15
Nedsense lege beurshuls prijs 5,6x intrinsieke waarde
New Sources Energy fraud
Neways electronic manufacturing services (EMS)
NN Group NV buy now under €40?
Novisource turnaround
NSI Nieuwe Steen Investments HNK = Het Nieuwe Kantoor

Nedap NV Nederlandsche Apparatenfabriek
OCI NV buy under 16 Euros
Oranjewoud not a Defensive stock...
Pharming back of the envelope math
Philips Electronics buy around 20?
Philips Lighting
PostNL
Probiodrug loss making biotech, not a stock for the Defensive Investor
Randstad
Refresco Group  buy around 12 Euros?
RELX Group (formerly Reed Elsevier)
RoodMicrotec shareholder financed
Royal Dutch Shell
SBM Offshore 
Sif Holding
Sligro 
SnowWorld
Stern Groep buy under 25 Euros?
Takeaway.com making a loss, not for the Defensive Investor. Prijs 10x verkoop.
Tetragon investment fund including CLO (Collateralized Loan Obligations) NAV $20, price $12,44
Thunderbird Resorts: Negative book value and losing money.
TIE Kinetix Shares Outstanding: 2013:933 2014:1127 2015:1227 2016:1830
TKH Group
TomTom
Unibail Rodamco a buy?
Unilever after Kraft Heinz bid
Value8 Rat in mi Kitchen
Van Lanschot
Vastned Retail check after share buybacks May 15th
VNC = too difficult pile: Geert Schaaij + Selwyn Duijvestijn 
Volta Finance fund including CLO (Collateralized Loan Obligations)
Wereldhave, buy?
Wolters Kluwer
Yatra Capital Indian Real Estate, losing money, stopping? Book 7,5 E, Price 5,75 E.

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Monday, October 23, 2017

The Three Mungertiers

2 Buffetteers +1 

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Tuesday, October 10, 2017

Oranjewoud waarde en prijs

Gerard Sanderink voornemens is door de koop van 971.742 gewone aandelen A zijn belang in Oranjewoud N.V. uit te breiden naar 97,53%. 

Are only 2,5% of shares being traded?  


Profit 2017 maybe 0,2 Euro divided by price 5,3 Euro = 4% Earnings Yield. Too low for the Graham Defensive Investor.

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Thursday, October 05, 2017

What is more effective: Giving to charity ? or Impact Investing?

My friend, Frank van Beuningen, asked Giving Evidence to write a report on:

 "What is more effective: Giving to charity ? or Impact Investing?"

The context was a Mini-Masters in which we both took part, organized by www.effectivegiving.nl

Download the PDF here:

https://drive.google.com/file/d/0B35UrU85jnu7a3Rsc2tld0NsaUpzN19RZ1dGd21kSGdnNUFV/view?usp=sharing

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Tuesday, October 03, 2017

Nedap stock intrinsic value using Benjamin Graham Defensive analysis

Old chart February 2017:

Profits were up in 2016 but lower than 2014, 2015 was quite a dip. The dividend is quite high: €1,3/37 = 3,5%

Not a stock for the Graham Defensive Investor at the current price.
--------------------------------------------------------------------------------------
Today October 2017
The discrepancy between Price and estimated Graham Value is interesting. I don't have a theory why this might be the case for Nedap, except dividend % return?

SECTOR: [PASS] Nedap is neither a technology nor financial Company, and therefore this methodology is applicable. 
SALES: [FAIL]  The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Nedap's sales of €186 million, based on 2016 sales, fails this test.
CURRENT RATIO: [FAIL] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. Nedap's current ratio €69m/€39m of 1.8 just fails the test.
LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for Nedap is €16 million, while the net current assets are €30 million. Nedap passes this test.
LONG-TERM EPS GROWTH: [PASS] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. Nedap's EPS growth over that period of 60% passes the EPS growth test.
EARNINGS YIELD: [FAIL] The Earnings/Price (inverse P/E) %, based on the lesser of the current Earnings Yield or the Yield using average earnings over the last 3 fiscal years, must be "acceptable", which this methodology states is greater than 6,5%. Stocks with higher earnings yields are more defensive by nature. ENedap's E/P of 4% (using the average of last 3 years) fails this test.

GRAHAM NUMBER VALUE:  [FAIL]  The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. Nedap has a Graham number of √(15 x €1,4 EPS x 1,5 x €8,34 Book Value) = €16

Dividend: Nedap currently pays a dividend of 1,40 E/40 E = 3,5%

Conclusion: Price (koers) a bit too high at the moment. Start buying only if under 30 Euros.

See www.beterinbeleggen.nl for analysis of other great companies.

Wednesday, September 27, 2017

Mettinger Katholieken

Mettinger Katholieken in less than 500 words Version: September 27, 2017

Open to the descendants of August Brenninkmeijer (the A of C&A) and their spouses and citizens of Mettingen, Germany who want to be “a force for good”.

Gospel of Luke 3:10

“What should we do then?” the crowd asked. John (the Baptist) answered: “If you have two coats, give one away.” We have two coats. We can give one away or … we can sell two, buy three, give one away, sell two, buy three, give one away, sell two, buy three, give one away….repeat.

Simple. Humble. Joyous. Fun.

If you are blessed with having inherited a significant ‘garden’, you can enjoy and share its fruits whilst letting it grow and flourish. You can pass on a larger, more bountiful ‘garden’ to the next generations.

In practice: We “tithe”; we give away 10% of our income (preferably to a Catholic organization).

Atheists welcome

“The Lord has redeemed all of us, all of us, with the Blood of Christ: all of us, not just Catholics. Everyone,” pope Francis told worshipers at Mass. “‘Father, even the atheists?’ Even the atheists. Everyone! We must meet one another doing good. ‘But I don’t believe, Father, I am an atheist!’ But do good: we will meet one another there.” Pope John Paul II: “Fides et Ratio”

“Samen familie zijn” in a circle of trust

We form a circle of trust: Sharing insights, doubts and the secret recipes of making money. We are together in “Unitas” but think and act independently; speedboats not a supertanker.

Meeting once a year or once every two years in Mettingen for those who wish.

De wonderen zijn de wereld nog niet uit. The more you give, the more you get.

Nun verdrieget jug

Raadsman: Father Pieter Zimmermann

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com +31629547689

Value8: "Rat in mi Kitchen"

Intrinsic Value?



Your guess is as good as mine. Not for the Graham Defensive Investor. This is the sort of situation Seth Klarman of Baupost profits from.

Rule of Thumb: If there is a "Rat in mi Kitchen" it is probably not by itself...

    • VALUE WEBSITE:
  •  SEPTEMBER 19, 2017
Value8 heeft kennisgenomen van de briefwisseling tussen Vereniging Effecten Bezitters en Mazars. Mazars heeft aangegeven in haar brief van 15 september jl. niet in te gaan op de situatie bij Value8 vanwege het fundamentele beginsel van vertrouwelijkheid dat door de accountant in acht dient te worden genomen.
Mazars heeft vandaag bij monde van Peter Hopstaken, bestuurslid van Mazars, meegedeeld dat de algemene opmerkingen die in de brief zijn gemaakt louter betrekking hebben op het publieke debat en expliciet niet op Value8.
Overigens heeft Value8 Mazars gevraagd aanwezig te zijn bij de Algemene Vergadering van Aandeelhouders van 28 juni jl.. Mazars heeft daar toen om haar moverende redenen van afgezien. Het bericht van Mazars daaromtrent (van 27 juni jl.) is als bijlage bijgevoegd.
Value8 streeft onverminderd naar een zo spoedig mogelijke afronding van het controleproces, en daarop volgend de publicatie van het definitieve jaarverslag, inclusief de gecontroleerde jaarrekening. Indien over de afronding van dit traject nadere mededelingen kunnen worden gedaan, zal Value8 deze middels een persbericht communiceren.
Voor analyse van de beste bedrijven zie: www.beterinbeleggen.nl

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Wednesday, September 20, 2017

NSI valuation after 8 to 1 reverse split

February 2017

The company is shifting strategy to office spaces.

EPS 0,33 Euro x 15 = 4,95 Euros x 8 = 39,60 Euros

Book Value is 4,25 Euro x 8 = 34 Euros

Graham Number is Square Root ( 4,95 x 1,5 x 4,25) = 5,6 Euro Graham Number x 8 = 44,8 Euros

Stock Price = 3,78 Euros x 8 = 30,24 Euros

Seems cheap. Dividend is 0,27/3,8 = 7% Pretty Good

0,27 Euros dividend x 8 = 2,16 Euros

-------------------------------------------------------
September 2017

EPS 2017 expectation = 2,55 Euros x 15 multiple = 38,25 Euros

Earnings Yield = 2,55 Euros Earnings per share / 32,7 Euros price = 8%

Book value is 35 Euros.

Graham Number = Square root (35 x 1,5 x 38,25) = 44,81 Euros

Expected return of 5-10% per year.

http://nsi.nl/

See www.beterinbeleggen.nl for great companies.

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Tuesday, September 19, 2017

Deckungsbeitrag = BCP Fund



Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Novisource back of the envelope Benjamin Graham intrinsic value

The company's results are improving and the share price is declining...

The number of shares is 11,7 million.

Earnings per share 0,08 Euros? x "multiple" of 15 = 1,2 Euros

Book value 3,8 million euros + 400k from selling Diesis Consultancy = 4,2 million Euros / 11,7 million shares = 0,36 Euros book value per share.

Price is 1,8 Euros. Too high for the Benjamin Graham Defensive Investor.

See www.beterinbeleggen.nl for in-depth analysis of great companies.

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Monday, September 18, 2017

Neways Electronics is Add (ing intrinsic ) Value

Price is what you pay, Value is what you get. The best thing is to have the value increase, when you paid a fair price.

SECTOR: [PASS]  Neways is in electronic manufacturing services (EMS) neither a technology nor financial Company, and therefore this methodology is applicable. 

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Neways' sales of €393 million, based on 2016 sales, passes this test.

CURRENT RATIO: [FAIL] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. Neways' current ratio €136m/€97m of 1.4 fails the test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that do not meet this criterion lack the financial stability that this methodology likes to see. The long-term debt for Neways is €11,4 million, while the net
current assets are €39 millionNeways passes this test.

LONG-TERM EPS GROWTH: [FAIL]  Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. Neways made a loss in 2012.

EARNINGS YIELD: [FAIL] The Earnings/Price (inverse P/E) %, based on the lesser of the current Earnings Yield or the Yield using average earnings over the last 3 fiscal years, must be "acceptable", which this methodology states is greater than 6,5%. Stocks with higher earnings yields are more defensive by nature. Neways' E/P of 6% (using last years earnings) fails this test.

Graham Number value: [FAIL] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. Neways has a Graham number of (15 x €0,71 EPS x 1,5 x €7 Book Value) = €10,6 and fails this test.

DIVIDEND €0,34/€12,73 = 3%

Conclusion: Neways seems priced just above intrinsic value. No margin of safety at the moment. The price was better a year ago when the Add Value Fund bought stock. 

See: www.beterinbeleggen.nl for more in depth, qualitative analysis of "good" companies.

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Tuesday, September 12, 2017

Nedsense beurshuls intrinsic value?

Losing money, no activity.

Book value: 800 000 Euros

Market cap: 30 000 000 shares x 0,15 Euros = 4 500 000 Euros.

Seems expensive here. It is selling at 5,6 times what it is "worth".

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Thursday, September 07, 2017

Lucas Bols and the Lindy Effect; Price is currently equal to Value?


Lucas Bols is an old brand, so chances are it will still exist 7 years from now: https://en.wikipedia.org/wiki/Lindy_effect


SECTOR: [PASS] Lucas Bols is neither a technology nor financial Company, and therefore this methodology is applicable. 

SALES: FAIL] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Lucas Bols' sales of €81 million, based on 2016 sales, fails this test.

CURRENT RATIO: [PASS] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. Lucas Bols' current ratio €21m/€4m of 5 passes this test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [FAIL] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that do not meet this criterion lack the financial stability that this methodology likes to see. The long-term debt for Lucas Bols is €163 million ? (it is not exactly clear to me what the debit is, it seems to have increased as part of a deal to sell Passoa), while the net
current assets are €17 millionLucas Bols fails this test.

LONG-TERM EPS GROWTH: [PASS] [FAIL]  Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. Lucas Bols' EPS growth over that period is a number we don't have because the IPO was in 2015.

EARNINGS YIELD: [FAIL] The Earnings/Price (inverse P/E) %, based on the lesser of the current Earnings Yield or the Yield using average earnings over the last 3 fiscal years, must be "acceptable", which this methodology states is greater than 6,5%. Stocks with higher earnings yields are more defensive by nature. Lucas Bols' E/P of 6,3% (using last years earnings) just fails this test.

Graham Number value: [PASS] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. Lucas Bols has a Graham number of (15 x €1,07 EPS x 1,5 x €13,7 Book Value) = €18,9 and passes this test.

DIVIDEND €0,57/€18,9 = 3%

Conclusion: Lucas Bols seems fairly priced just above €18,9. Little margin of safety at the moment.

See: www.beterinbeleggen.nl for more in depth, qualitative analysis of "good" companies.

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Thursday, August 31, 2017

VolkerWessels simple intrinsic value calculation


Decades ago Benjamin Graham wrote: The Intelligent Investor. Warren Buffett read the book and the rest is history.

It never fails to surprise when the market "follows" Graham's simple rule for the Defensive Investor: Don't pay more than 15x Earnings and/or 1,5x Book Value.

The Graham Number value is the geometric average of the two:

Square Root ( 15 x 1,9 Euros Earnings per Share x 1,5 x 13,5 Euros Book Value per Share ) =

24,1 Euros Graham Value

"Mr. Market" Price per share today: 25,6 Euros.

For in depth analysis of other companies, see: www.beterinbeleggen.nl

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Wednesday, August 30, 2017

Koninklijke Wessanen NV intrinsic value Graham Defensive valuation

Not a buy when over 10 Euros per share. 60 cents Earnings per Share x 15 Multiple is 9 Euros.


Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Tuesday, August 29, 2017

Koninklijke Vopak Benjamin Graham Intrinsic Value

SECTOR: [PASS]  Vopak is neither a technology nor financial Company, and therefore this methodology is applicable. 

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Vopak's sales of €1 650 million, based on 2016 sales, pass this test.

CURRENT RATIO: [FAIL] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. Vopak's current ratio €608m/€534m of 1.1 fails the test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [FAIL] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that do not meet this criterion lack the financial stability that this methodology likes to see. The long-term debt for Vopak is €2 429 million, while the net current assets are €74 millionVopak fails this test.

LONG-TERM EPS GROWTH: [PASS] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. Vopak's EPS growth over that period of 141% passes the EPS growth test.

EARNINGS YIELD: [PASS] The Earnings/Price (inverse P/E) %, based on the lesser of the current Earnings Yield or the Yield using average earnings over the last 3 fiscal years, must be "acceptable", which this methodology states is greater than 6,5%. Stocks with higher earnings yields are more defensive by nature. Vopak's E/P of 8% (using the average of last 3 years earnings) passes this test.

Graham Number value: [PASS] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. Vopak has a Graham number of (15 x €3,1 EPS x €18,7 Book Value) = €36 and passes this test.

DIVIDEND €1,05/€36 = 3%

See www.beterinbeleggen.nl for better analysis of companies worldwide.

Monday, August 28, 2017

Koninklijke KPN NV Price is what you pay, value is what you get.

SECTOR: [PASS]  KPN is neither a technology nor financial Company, and therefore this methodology is applicable. 

SALES[PASS]  The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. KPN's sales of €6 806 million, based on 2016 sales, pass this test, but sales are decreasing year to year.

CURRENT RATIO
[PASS]  Current assets  €5 195 divided by short term debt €2 628 = 2.0 which is Graham's limit. 

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS
[FAIL] Long term debt €8 156 is higher than Net Current Assets €2 567.

LONG-TERM EPS GROWTH[FAIL] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. EPS for KPN have decreased since 2003 and therefore the company fails this criterion. It has also lost money during the past 5 years.


Earnings Yield: [FAIL] Graham likes to see 7% or higher. 6% fails this test. 

Graham Number value: [FAIL]  The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. KPN has a Graham number of (15 x €0,18 EPS x €0,84 Book Value) = €1,8

Dividend€ 0,11/€3 = 4%

Conclusion 2016: KPN is not a growing, money making machine. The stock price and debt are too high for the Defensive Investor.

Conclusion 2017: Copy / paste 2016

See www.beterinbeleggen.nl for better analysis of companies.

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Friday, August 25, 2017

Einfach Simple

Man muß die Dinge auch so tief sehen, daß sie einfach sind. 
Wenn man nur an der Oberfläche der Dinge bleibt, sind sie nicht einfach; 
aber wenn man in die Tiefe sieht, dann sieht man das Wirkliche und das ist immer einfach.
(Dr. Konrad Adenauer, deutscher Politiker (CDU), 1949-63 erster Bundeskanzler (1876-1967)) 

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Wednesday, August 23, 2017

Warren Buffett's simple Berkshire Hathaway intrinsic value math

Summary: 1,25 price to book is a very reasonable price for Berkshire Hathaway stock. If you buy at that price point, you can expect a future return of roughly 12%. Buy A shares if the price dips under 1,4 PB = $182,816 x 1,4 = $255,942

=======

Below is a slightly simplified version of the explanation given by Warren Buffett in his Letter to Shareholders 2012; http://www.berkshirehathaway.com/letters/2012ltr.pdf see page 20.

"We’ll start by assuming that you are the owner of a business with $1.00 million of book value. The business earns 12% on tangible book value – $120,000 – and can reasonably expect to earn the same 12% on reinvested earnings. Furthermore, there are outsiders who always wish to buy into your business at 125% of net worth (in other words at a stock Price of 1.25x Book or 1.25 "PB"). Therefore, the quoted (or market) value of what you own is now $1.25 million. You leave all earnings in the company and sell 3.2% of your shares annually. Since the shares would be sold at 125% of book value, this approach would produce $40,000 of cash initially, a sum that would grow annually. Call this the “sell-off” approach. Under this “sell-off” scenario, the net worth of your company increases to $3,105,848 after ten years ($1 million compounded at 12%). Because you sell shares each year, your percentage ownership would have declined, and, after ten years, you would own 72.24% of the business. Even so, your share of the net worth of the company at that time would be $1 121 770. And, remember, every dollar of net worth (book value) attributable to you can be sold for $1.25. Therefore, the market value of your remaining shares would be $1 402 213. Voila! – you have both more cash to spend annually and more capital value. This calculation, of course, assumes that our hypothetical company can earn an average of 12% annually on net worth and that its shareholders can sell their shares for an average of 125% of book value. To that point, the S&P 500 earns considerably more than 12% on net worth and sells at a price far above 125% of that net worth. Both assumptions also seem reasonable for Berkshire, though certainly not assured. (Keep remembering, open-market purchases of the stock take place at 125% of book value.)

Moreover, on the plus side, there also is a possibility that the assumptions will be exceeded.  The sell-off method, unlike dividends, lets each shareholder make her own choice between cash receipts and capital build-up. One shareholder can elect to cash out, say, 60% of annual earnings while other shareholders elect 20% or nothing at all.  

Let me end this math exercise – and I can hear you cheering as I put away the dentist drill – by using my own case to illustrate how a shareholder’s regular disposals of shares can be accompanied by an increased investment in his or her business. For the last seven years, I have annually given away about 4,25% of my Berkshire shares. Through this process, my original position of 712,497,000 B-equivalent shares (split-adjusted) has decreased to 528,525,623 shares. Clearly, my ownership percentage of the company has significantly decreased. Yet my investment in the business has actually increased: The book value of my current interest in Berkshire considerably exceeds the book value attributable to my holdings of seven years ago. (The actual figures are $28.2 billion for 2005 and $40.2 billion for 2012.) In other words, I now have far more money working for me at Berkshire even though my ownership of the company has materially decreased. It’s also true that my share of both Berkshire’s intrinsic business value and the company’s normal earning power is far greater than it was in 2005. Over time, I expect this accretion of value to continue – albeit in a decidedly irregular fashion – even as I now annually give away more than 4,25% of my shares (the increase has occurred because I’ve recently doubled my lifetime pledges to certain foundations).

At Berkshire we will stick with our no dividend, sell off policy as long as we believe our assumptions about the book-value buildup and the market-price premium seem reasonable. If the prospects for either factor change materially for the worse, we will reexamine our actions."

Below is a chart I have used for my own decisions on Berkshire Hathaway, when I wanted to sell around October 2016. I decided to wait and did some selling around January 2017. (The chart is in Euros and is based on only 7 unevenly distributed data sets across the years, but should get the point across.) The current Price / Book at Berkshire Hathaway is: $180/$122 = 1,48 which is higher than 1,25. (B shares is A shares divided by 1 500. Buy A shares if the price dips under 1,4 PB = $182,816 x 1,4 = $255,942 )






Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com