2008 results:1. Total Reveune down 9.7% vs 2007
- Exclude $6.8B derivitve losses in 2008, reveune down only 3.1%;
- Exclude $6.8B derivitve losses in 2008 and the $7.1B special insurance deal in 2007, reveune up 2.9%;
- Strong 10.6% reveune growth in Utilities/Energy segment, continue future growth is expected;
2. Reported EPS $107 (class B) down 62% vs 2007 or adjusted EPS $228
- Exclude $6.8B derivitve losses in 2008, EPS down 20%;
- Insurance underwriting still manage to make a profit of $2.8B, about 5% of invested capital;
- Expenses management looks good;
- EPS down mainly due to change on investment from gain $5.4B in 07 (gain to sell all Petro China) to loss $0.6B in 08;
3. Ratio
- price / earning ratio as of Feb 27, 09 is 23.96, quite high compare to peers;
- price / earning ratio based on adjusted EPS is 11.25, looks reasonable;
- price / book as of Feb 27, 09 is 1.09, lower than company's historical average of about 1.8
4. Balance Sheet
- Book value fall 9.6%, better than my expectation and better than S&P's 37%
- Cash balance dropped from $44.3B in 07 $25.5B in 08;
- 2008 Net purchased in equity $3.3B, bonds $2.3B and special deals $14.5B
- Cash flow from opeartion remain strong at $11.2B or down 10.4%
Risk:
- Aging / retirement concerns for BRK's management team;
- Credit rating may fall derivative value / its equity holding continue to fall;
- Cost of capital may rise derivative value / its equity holding continue to fall;
- The conglomerate's nature makes it difficult and unclear to estimate the company's performance
5. Forecast 09
- Based on 2009 equity market performance so far, it will suffer another $6.2B hit on deriveritive and may be another $10B in its equity portfolio, which translate into 13.2% down in book value;
- Special deal should help to generate addition $1.7-$2.0B investment income per year start from 2009
Comments:
BUY, Fair Value $4,640 (not yet adjusted)
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