Would I buy shares in Warren Buffet’s company – Berkshire Hathaway?

While this might be controversial, there are several issues I see with investing in Berkshire Hathaway (BRK-A, BRK-B), that would stop me from buying shares. While I’m a great admirer of Warren Buffett and Charlie Munger, as an investor, I want to know when and how I will receive a return on my investment. There’s not much point in investing in something, if you can’t envision the end game. At some point as an investor, you either want to be able to sell the investment and make a profit, or you want to receive a return along the way (usually in the form of dividends).

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Billabong International Limited (ASX:BBG) – Capital raising on the cards

Billabong released a trading update on Monday 19th December, announcing a profit downgrade, an operational review and a strategic capital structure review. Billabong’s share price subsequently fell by 40%.

The company said that sales in Europe have been affected by “Sovereign debt issues and fears of a global recession, impacting consumer spending patterns significantly”. Europe is also being affected by bad weather due to limited snowfalls.

Sales in Australia have been significantly affected by unseasonably cold summer weather, despite the November rate cut by the RBA. Read more of this post

A review of Skaffold.com – Yet another black box trading system

You may or may not be aware of Roger Montgomery’s site www.skaffold.com. It’s basically Roger’s ideas on rating and valuing ASX listed companies in a web application. You can think of it as a black box that indicates which companies are cheap/expensive and which are good/bad/average. And that’s the issue. There is no insight into how those ratings and values are arrived at. This is where Skaffold fails, and becomes yet another black box stock system. Read more of this post

Washington H Soul Pattinson (ASX:SOL) – overlooked?

You may or may not have heard about Australia’s second oldest listed company, Washington H. Soul Pattinson (ASX:SOL). The company has been listed on the Australian Stock Exchange for more than 107 years. The company has a current market cap of over $2.9Bn, putting it into the Top 50 companies in Australia by market cap. Would you believe its not in any of the standard ASX indices? Not even the ASX300. The reason is that the company has a cross holding agreement with Brickworks (ASX:BKW), where Soul Pattinson owns 44% of Brickworks shares and Brickworks owns 43% of Soul Pattinson shares. This was setup to protect both companies from being individually acquired.

The company has returned 17.5% per annum to shareholders over the last 15 years, and at the current price of $12.18, looks to be trading at a discount to intrinsic value and definitely worthy of further research. The company’s next report to shareholders is due in the next couple of weeks (has to report to ASX by end of September), and I await it with great interest.

Things to like

  • Big enough market cap of 2.875Bn to be in Top 50, but its not even in ASX300.
  • Only covered by one stockbroker (which is great)
  • Very diversified investments not limited to construction materials, property, energy, coal mining, port operations, pharmacies, pharmaceuticals and health care, telecoms, funds management, rural supplies such as fertiliser, seed and grain, irrigation and insurance and financial services. It also has its own investment portfolio worth around $450m with investments in companies such as BHP Billiton, Commonwealth Bank, Westpac, National Australia Bank, Telstra and Perpetual.
  • Shareholder friendly, pays out approximately 50% of earnings as dividends, so retains fund to invest and has paid out eight special dividends in the last 10 years.
  • Soul Pattinson haven’t raised equity from shareholders in 10 years.
  • Debt/Equity ratio is -45%, with net cash of $1,700m
  • Management have large shareholdings in SOL as well as its associated companies and subsidiaries.

Valuation

Market value
If we add up all the value the market ascribes to Soul Pattinson’s holdings and exclude $350m in costs such as liabilities and operating costs, Total value comes to just over $4Bn. On a per share basis, thats $16.83. Based on today’s share price of $12.18, you are getting $16.83 of value, a discount of 38%.
Book Value
Soul Pattinson’s last stated book value per share (March 2011) was $16.39, so its trading at a discount to book value of 34%.
Net Asset Value
Based on the last stated net assets provided by Soul Pattinson and each of its holdings, and again excluding $350m in costs, I’ve calculated net asset value per share to be $13.65, so company is trading at a 12% discount to net tangible assets.
Discount to intrinsic value
Based on several of my valuation methods, I get an average valuation of $16.72, so Soul Pattinson looks to be trading at a discount to its intrinsic value. With a history of special dividends, 17.5% annual returns, a 107 year history and the many features mentioned above, Soul Pattinson is definitely a company I’ll be keeping my eye on.

Transfield Services – An analysis

Transfield Services, Transfield
Transfield Services (ASX:TSE) is an Australian listed company providing services such as operations, maintenance, and asset and project management services to the  Resources and Industrial, Infrastructure Services and Property and Facilities Management sectors. It was listed in May 2001.

In this report, I’m going to have an in-depth look at Transfield’s financials and its current valuation. I’ve also attached an Excel model for the company, so you can see the financials for yourself.

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Cheap stocks

Now that most companies with a June year-end have finalised their 2011 fiscal year results, I’ve updated the valuations for many companies and share my views on a few of them here, including some that I think are cheap.

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Calculating Intrinsic Value – Market multiples

In an earlier post, I discussed the PE ratio and how investors calculate it and use it as an indicator of value. The first part of this post will look at how the PE ratio is used as a multiple to calculate value. There are other market multiple ratios that are used including EV/EBIT, EV/EBITDA, EV/Sales, and those are just a few. With both PE ratio and other market multiple ratios, its important to remember that they are “relative” ratios, so they are generally used to compare a company ratio to similar market multiple ratios of companies in the same sector, different sectors and the overall market ratio. The issue is that the market as a whole may be expensive, so these ratios can be misleading. Read more of this post

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