Docstoc

Berkshire Hathaway Inc

Document Sample
Berkshire Hathaway Inc Powered By Docstoc
					                                                      22 June 2010
Berkshire Hathaway Inc                                By Jean van Wyk




In this report we take an in-depth look at Berkshire Hathaway Inc (Berkshire) and provide a
long term outlook on the company.

BNSF acquisition
The recent acquisition of Burlington Northern Santa Fe Corp (BNSF) for $27 billion was the largest in
the history of Berkshire. Rail transport is expected to recover and looks prosperous in the long run.

Continued sale of Moody Corp shares
On Thursday 25 March Berkshire Hathaway sold a further 205,628 Moody shares, as it has been
doing since December 2009. This leaves Berkshire with 31 million shares or a 13% stake in the
ratings agency.

Munich Re stake increased
Berkshire increased its majority holding in Munich Re, the largest reinsurance company in the world. It
currently owns 8% of the reinsurance giant, complementing its stakes in Swiss Re and Berkshire’s
other reinsurance businesses. Buying stakes in competing companies gives Berkshire exposure to
additional markets without the danger of influencing prices.

Berkshire’s liquor license
Kahn Ventures is an alcoholic wholesale distributor of beer, wine and spirits. Berkshire subsidiary
McLane Company has agreed to buy Kahn Ventures in order to assist Berkshire with future
acquisitions. McLane is a $32 billion supply chain services leader, providing supply chain solutions to
various groceries, drugstores and restaurants in the US.

Berkshire better bet than Obama
Bond market data indicates that two year notes sold by Berkshire were selling for less than US
Treasuries in March, indicating a lower chance of default from Berkshire than the US government.

Valuation
Using our sum-of-the-parts valuation, our calculations indicate a fair value for Berkshire’s class A
shares of $ 134,545

Outlook
The US economy is showing signs of a recovery and Berkshire Hathaway is well positioned to take
advantage of this given its extensively diversified portfolio of assets. Cash flows and economic profit
generation are expected to recover over the next two years and we expect FY10 to be better than
FY09 for Berkshire due to low interest rates and an increase in consumer confidence.

Berkshire is maintaining its no-dividend policy in favour of investing cash resources back into the
business Current rand strength against the dollar presents a further short term opportunity, but we
expect the rand to weaken against the dollar as soon as the US economy is back in full swing.

                                                          Forecast returns
                                                          Sum-of-the-parts valuation      134,545
                                                          Forecast dividend yield         0%
                                                          Share Statistics
                                                          Share Price        (US $ps)     119,375
                                                          Market Cap         ($m)         190,959
                                                          Shares        in   (m)          1.59
                                                          issue
                                                          Avg Volume         (3month)     139,244
                                                          S&P 500                         1,113.2
TABLE OF CONTENTS



Introduction ........................................................................................................................................... 3

Executive Summary ............................................................................................................................. 3

Overview of Berkshire Hathaway ...................................................................................................... 5
            Berkshire Hathaway Q1 2010 results ....................................................................................................... 5
            Notes from Berkshire Hathaway’s annual shareholder meeting on 1 May 2010 ................................... 5
            BNSF acquisition ......................................................................................................................................... 5
            Investments.................................................................................................................................................. 6


Company operations ........................................................................................................................... 6
            Insurance and Reinsurance........................................................................................................................ 6
            GEICO.......................................................................................................................................................... 7
            Overview of property and casualty industry............................................................................................... 8
            Derivatives ................................................................................................................................................... 8


Market Consensus ............................................................................................................................... 9
            Summary...................................................................................................................................................... 9
            Credit rating.................................................................................................................................................. 9


Macro-economic view.......................................................................................................................... 9
            Economic overview ..................................................................................................................................... 9
            Economic impact on Berkshire................................................................................................................. 10



Share price performance .................................................................................................................. 11

Valuation .............................................................................................................................................. 11

Succession .......................................................................................................................................... 12

Conclusion .......................................................................................................................................... 12

Statement of risk ................................................................................................................................ 12

Berkshire holdings ............................................................................................................................. 13


                                                                                                                                                                           4
Introduction

This report aims to provide insight into the diverse operations of Berkshire Hathaway Inc (Berkshire).
Berkshire has investments in a diverse range of operations and we take a closer look at the main drivers of
earnings and growth for the business. The recent acquisition of BNSF will allow Berkshire to move into new
territory and capitalise on an industry that is expected to grow in the near future. The US economy has been in
a recession for almost two years and the expected emergence of an improvement in the business cycle will
allow companies to slowly but surely regain profitability and, over time, increase shareholders wealth.

Berkshire has withstood some of most economically testing times and was able to conserve a large part of its
cash during the US recession. While many companies were in need of capital injections, Berkshire was able
to act as capital lenders. This is one of the reasons why we believe the business is a sound investment in the
long run. Berkshire’s decision to reinvest its cash instead of pay out dividends for the foreseeable future is
intended to provide investors with sustained growth in the company itself. CEO and Chairman, Warren Buffet
has a lasting track record of making long-term investments in US companies, but he does not exclude foreign
opportunities and Berkshire’s investments include a number of multi-national companies.



Executive Summary

Berkshire Hathaway Inc is a billion dollar pioneering holding company that consists of two distinct operations.
One arm of the business invests in equity, bonds and cash equivalents, while the other underwrites insurance
activities. The group’s investments are spread between most sectors, including finance, energy, retail and
manufacturing. It owns stakes in 45 non-insurance non-listed companies that can be seen as a collection of
separately-managed medium and large businesses. These diverse businesses operate in a wide variety of
sectors including electricity, candy, luxury flights, boats, building, kitchen tools, furniture and newspapers.

The insurance businesses are the largest contributors to Berkshire’s operating earnings, contributing $25.5
billion or approximately 80% to total earnings for the first quarter of the 2010 financial year. They did, however,
show a decline in relative contribution compared to 1Q09. The recent acquisition of Texan railroad giant,
BNSF, is expected to generate strong earnings in the coming years and has already proven to be profitable,
contributing $2.1 billion to first quarter earnings.




                                                                                                                 3
Berkshire recently purchased the remainder of the outstanding shares of BNSF for $27 billion - the biggest
acquisition the “Oracle of Omaha” has made in the history of the company. BNSF is expected to become the
largest contributor to Berkshire earnings and, in spite of being unprofitable for the last five years, the railroad
industry is well positioned to benefit from the transport of goods as the US economy returns to growth. Fuel
efficient transport for goods is becoming increasingly important in the US and this could be the biggest driver
of increasing profits for BNSF in the future.

Increased debt levels to finance the acquisition resulted in a downgrading of Berkshire’s credit rating from
AAA to AA. At this rating, however, the stock still falls within the investment grade category and we expect
Berkshire to regain its AAA rating as cash flow benefits from the acquisition begin to materialise.

Warren Buffet is renowned for his stock picking ability and with investments in almost 50 listed companies
worth $48.5 billion; Berkshire’s equity portfolio stands out above the average. Some of its largest holdings
include Coca-Cola, Wells Fargo, Procter and Gamble and American Express. Berkshire has acted as a
liquidity provider on numerous occasions during the recent recession and as a result has gained large
profitable positions in companies such as Goldman Sachs, General Electric, Dow Chemical and Swiss Re.

The insurance industry generally and underwriting profits in particular have experienced a significant decline
due to the weakened US economy. Berkshire’s first quarter results showed that insurance and reinsurance
operations contributed relatively less towards total earnings than for the same period in FY09, and will
probably continue to do so. Berkshire relies on underwriting as a major contributor to earnings and we expect
that once the economy has recovered, so too will underwriting profits.

Berkshire’s disciplined underwriting ability has ensured financial success over recent years. Because of the
collect-now, pay-later model, Berkshire has created the ability to accumulate large amounts of ‘’float’’ from
insurance operations. This float is, invested, to the benefit of Berkshire’s shareholders, and has grown from
$16 million in 1967 to $63.5 billion at the end of 1Q10 - an increase of 9% per annum. The float for 1Q10
increased to $15,531 million from $14,310 million in 1Q09.

Derivatives play a key role in both Berkshire’s profitability and growth. In 2009 derivatives brought in a profit of
$3,624 million after suffering significant losses the previous year. Berkshire will continue to use derivatives in
the foreseeable future.

Berkshire is listed on the New York Stock Exchange (NYSE) and offers Class A and B shares to investors.
The Class A shares currently trade at circa $ 119,375 per share and the Class B shares trade at circa $ 79.81
per share. The B shares recently underwent a 50/1 stock split, providing an opportunity for investors who can’t
afford the A class shares to be part of the billion dollar empire. Class B shares have the voting rights, dividend
and distribution rights of 1/1500 of a class A shares.




                                                                                                                  4
Overview of Berkshire Hathaway

Berkshire Hathaway Q1 2010 results
Berkshire Hathaway posted better than expected earnings for the first quarter of 2010 (1Q10) thanks to
improved US economic activity and the BNSF deal. Group revenue rose to the highest in three years from
$22.8 billion to $32 billion. Net earnings showed a profit of $3.63 billion compared to last year’s first quarter
loss of $1.53 billion. The $27 billion investment in BNSF appears to be paying off, contributing $2.1 billion
towards group revenue. Luxury goods were among the main contributors to earnings growth, including jewelry
sales, luxury flights and vehicle sales. In contrast, the percentage of earnings from insurance and reinsurance
operations fell from the first quarter of 2009. We expect BNSF and the group’s retail investments to contribute
more toward earnings in the coming quarters as economic activity picks up.

Notes from Berkshire Hathaway’s annual shareholder meeting on 1 May 2010
Interest in Berkshire Hathaway’s AGM has grown to such an extent that this year more than 37,000 people
attended the event in Omaha to hear what Warren Buffet and fellow executive Charlie Munger had to say.
Some of the key points included:

         Buffet’s view of the economy is that it is recovering. This is reflected in stronger results posted by
         Berkshire in March and April, compared to the first two months of 2010.
         Goldman Sachs appears to have Warren Buffet’s full support with regards to the ongoing SEC
         investigation into allegations that Goldman has defrauded its investors.
         Buffet is willing to consider an investment of up to $10 billion given the right opportunity. Shortly after
         the AGM, Buffet expressed his interest in an Indian state-run insurance company. He plans to meet
         with the Indian government in the future as present legislation does not allow the government to sell
         off stakes in a company. The biggest government-run insurance companies are New India
         Insurance, National insurance, Oriental Insurance and United India Insurance and it is likely that
         Buffet’s interest lies in one of these businesses.
         Buffet recently underwent a medical exam and seems to be in good health. If he was to pass away
         there would be a successor chosen within 24 hours from internal members of the company.
         Berkshire Hathaway will continue its no dividend policy as Buffet belives every dollar that is
         reinvested could generate more market value to the business.

BNSF Acquisition
With 32,000 miles of rail network, the largest rail transporter of coal and grain in the US is one of the new
additions to Berkshire’s already impressive list of investments. The acquisition in February 2010 added 65,000
new shareholders to Berkshire, bringing the total number of shareholders to 565,000. Berkshire purchased
the remaining 77.4% it did not own of Burlington Northern Santa Fe Corp (BNSF) for $27 billion, consisting of
stock and cash. ‘’It’s an all-in wager on the economic future of the United States,’’ Buffet said in a statement.

The demand for rail transport has declined significantly over the last five years, resulting in very low returns
from the rail industry. Investing capital into the industry at this point could, however, lead to significant growth
in the future due to increasing demand for coal transport on the back of higher (coal driven) electricity
demand. Rising oil prices is another reason why rail transport has an immense cost advantage over other oil-
reliant means of transportation. BNSF carries an assorted array of goods with up to 30% of all transportation
consisting of consumer goods.




                                                                                                                  5
Rail transport is expected to get a substantial boost from the recovering economy during the first half of 2010,
and Berkshire has positioned itself well to take advantage of a positive shift in economic activity. The long
term prospects for rail transport look brighter than the short term and we believe Buffet’s enthusiasm for the
industry is well founded.

BNSF is alreasy showing promise, contributing $2.1 billion towards Berkshire’s 1Q10 earnings. The
acquisition was financed by the issue of an additional 95,000 shares, amounting to 6.1% of Berkshire’s
outstanding equity.

Investments
At the end of the first quarter, Berkshire equity investments had a net asset value of $48.5 billion. Stakes in
Coca-Cola, Kraft-foods, Wells Fargo, American Express and Procter & Gamble made up 60% of Berkshire’s
equity holdings. Companies in the consumer goods industry, which was forced to cut back on production in
the wake of a long recession, make up 37% of Berkshire’s portfolio. Investments in this sector, which is a key
indicator of the health of the economy, include Coca-Cola, Procter & Gamble, Kraft Foods and Wal-Mart.
Berkshire’s investment philosophy aims to ensure profitability in the long run. Investments are mainly in US
firms, with only a handful of offshore investments. This strategy is intended to eliminate foreign risk and deliver
stable US dollar earnings.

Berkshire Hathaway has acted as a liquidity provider on numerous occasions during the recent economic
crisis. ‘Be fearful when others are greedy and be greedy when others are fearful, ‘’ has long been Buffet’s
investment motto. Goldman Sachs, General Electric, Swiss Re, Wrigley and Dow Chemical are five of the
companies in which Berkshire has invested $26 billion over the last 20 months due to financial difficulties.
These companies are expected to generate annual earnings of $2 billion.

Berkshire has positioned itself well to withstand the recent financial meltdown and was able to take advantage
of numerous business opportunities. In exchange for bailing out Goldman Sachs, it received preference
shares that would pay out a 10% dividend and warrants that were well in the money. The warrants have a
strike price of $115, but Berkshire chose not to exercise them, predicting that they will be worth more in the
future. In April, however, the Securities and Exchange Commission (SEC) sued Goldman Sachs, saying it
had defrauded investors when they were selling debt investments, betting against them by taking short
positions. When news reached the market the stock slid by 13% and reduced the value of the warrants by
over a $1 billion. Buffet has publicly voiced his commitment to Goldman Sachs and has give CEO Lloyd
Blankfein his full support in the matter.



Company operations

Insurance and Reinsurance
Since the bulk of Berkshire’s earnings come from insurance, it is worth taking a brief look at the insurance
industry. The insurance industry is currently the fifth largest industry sector in the US economy. Most citizens
need insurance and they seek the lowest premiums for the best cover. Companies are also becoming more
flexible on terms and conditions because the underwriting appetite is increasing. As the economic recovery
takes hold, consumer and capital goods are poised to excel, and Berkshire Hathaway is well positioned to
benefit from a similar upswing in the insurance industry.




                                                                                                                 6
Solid insurance underwriting profits in the last quarter of 2009 and the first quarter of 2010 alleviated some of
the pressure Berkshire has experienced due to the weaker economy and a trend towards higher claims and
lower risk pricing.

Berkshire Hathaway Primary Group and GIECO were the only companies within the Berkshire stable to
contribute towards earnings growth for 1Q10. GEICO produced $299 million in pre-tax earnings, an increase
of 102% from 1Q09, while Berkshire Hathaway Primary Group contributed $33 million in pre-tax earnings.
General Re produced pre-tax losses of $39 million, mainly due to weaker property/casualty underwriting.
Although Berkshire Hathaway Reinsurance Group contributed a pre-tax gain of $52 million, this was
considerably lower than 1Q09, when it contributed $177 million in pre-tax earnings. The decrease resulted
from lower premiums earned from catastrophe and individual risk contracts.



Underwriting gain (loss) attributable to:                   ($ millions)               First Quarter
                                                            2010                       2009
GEICO                                                       299                        148
General Re                                                  (39)                       (16)
Berkshire Hathaway Reinsurance Group                        52                         177
Berkshire Hathaway Primary Group                            33                         4
Total Pre-tax gain                                          345                        313



Berkshire’s underwriting activity has allowed it to capitalise on opportunities even when times were tough.
Berkshire doesn’t shy away from taking on risk when it comes to underwriting. It has stated that the business
is willing to assume more risk than its competitors. In particular, the timing and amount of catastrophe losses
is a cause of significant underwriting volatility. During two of the last three years, Berkshire benefited from
underwriting due to the minor levels of catastrophe losses, and only recent losses claimed from hurricanes
required them to pay an excess of $162 million for 1Q10, resulting in lower pre-tax earnings.

Achieving the right pricing strategy is a key driver of success for insurance underwriters. Being too expensive
leads to customers searching elsewhere for insurance, whereas being too cheap leads to claims exceeding
income. For seven consecutive years, Berkshire has collected more premiums than it has paid out in claims,
enabling it to declare an underwriting profit. The float achieved through the ‘collect now, pay later’ model is
cost free and can be used to generate additional cash flows through investing.

GEICO
GEICO is Berkshire’s main insurance earnings contributor, at $3,453 million of the $7,426 million underwriting
premiums and contributed $299 million to underwriting profits in 1Q10. The recovery seen in the businesses
earnings is expected to continue.

Overview of property and casualty industry
Property and casualty (PC) insurance business has been the driving force behind the growth in Berkshire’s
insurance operations in recent years. PC insurance is insurance on businesses, homes and cars where
defined portions of risk are assumed. Property insurance protects a person or business against the loss of



                                                                                                               7
producing income, whereas casualty insurance protects a person or business against legal liability for losses
caused by third parties. Four Berkshire companies represent the largest part of its PC business: GEICO,
General RE, Berkshire Hathaway Reinsurance and Berkshire Hathaway Primary Group.

The PC insurance premiums earned were $749 million for the first quarter of 2010, a 2% drop compared to
last year’s first quarter. This was mainly due to the fact that European business volumes declined and a
weaker dollar against the euro. We expect premiums to continue to decline for the remainder of 2010 as
competition increases.

Berkshire is currently the largest shareholder of the world’s biggest reinsurance company, Munich Re.
Berkshire owns an 8% stake in the company, along with a 3% holding in Swiss Re. The insurance and
reinsurance industries are expected to recover in the long run as borrowing costs are at their lowest since
2004 and reinsurers have been issuing bonds at a faster pace recently, taking on $1.34 billion in extra debt in
1Q10.

Derivatives
Since 2007 derivatives have been one of the most controversial talking points in the financial world. They
were one of the major the contributors to the downfall of the US financial system. Nonetheless, increased
derivative exposure between 2008 and 2009 has allowed Berkshire to generate a significant additional float
amounting to $6.3 billion. Buffet made it clear in his letter to shareholders in May 2010 that he will continue to
use derivatives to generate cash flows and will take full responsibility for any losses. Berkshire turned a
$3,624 million profit from derivatives in the past financial year, compared to 2007 and 2008 when losses
amounted to $89 million and $6,821 million respectively. The 1Q10 results show that Berkshire has turned a
$411 million profit from derivative contracts compared to last year’s first quarter loss of $1,517 million.

Derivative contracts at the end of 1Q10 had a notional value of $63 billion. Berkshire mostly sells put options
on the S&P 500 and foreign equities and receives an upfront premium when doing so. At the peak of the
financial crisis when markets moved against Berkshire, the business was only required to post $1.7 billion
worth of margin.

Berkshire’s derivative contracts fall within four major categories: put options, compensation to companies who
have suffered credit losses from high yield indices, credit default swaps and tax exempt bond insurance
contracts.

In 2008 Berkshire was committed to 251 derivative contracts, citing a belief in the mispricing of each contract.
Berkshire currently has at least $1 billion in unrealised losses on warrants form Goldman Sachs due to the
ongoing investigation by the SEC in connection with debt investments during the financial crises.



Market Consensus

Summary
Holding company, closed-end mutual fund, conglomerate and liquidity provider are only some of the labels we
can give to Berkshire Hathaway. The insurance and investment operations of Berkshire are the benchmark
the company uses as a yardstick to measure performance and forecast growth. It is important to take into
account something called the ‘Buffet premium’ when estimating the intrinsic value of Berkshire Hathaway.



                                                                                                                8
This premium refers to the unique stock picking and allocation skills of Warren Buffet, which could be built into
the price of Berkshire stock and misrepresent the true value of the shares.

On 7 May 2010 Berkshire reported higher than expected earnings of $32 billion for the first quarter. The
insurance operations contributed the bulk of earnings with $25.5 billion, although this was a relative decline
compared to 1Q09. We expect this downward trend to continue in the coming years.

We estimate a long term earnings growth rate for Berkshire of 7%, primarily through acquisitions. The average
market consensus for EPS is $7,800 and 17.7 for the forward P/E 2010. To compare the P/E ratio to any
other company or industry would be meaningless since Berkshire doesn’t have operations in only one
industry and there are no equivalent companies with a similar structure or composition.

Credit rating
Berkshire increased its debt by $8 billion to finance the BNSF acquisition and consequently lost its AAA credit
rating when both Fitch and Moodys rating agencies downgraded the stock. The debt/equity ratio has
increased 13.5% from 1.19 in 2009 to 1.35 in 1Q10. This increase has, however, financed growth during the
recent economically testing times. Should Berkshire require additional debt to finance further growth, it could
lead to volatile earnings as interest expenses increase. Given Berkshire’s unique make-up it is difficult to
compare its debt/equity ratio to the industry norm.

Berkshire Credit default swap prices recently showed a decline to their lowest levels since September 2008,
indicating a market view that Berkshire now has a higher chance of defaulting than previously. However,
according to the latest bond market data, Berkshire has a better credit rating than the US Government. Two-
year notes sold by Berkshire in March were placed at a yield 3.5 basis points below that of US Treasuries,
suggesting that Berkshire is less likely to default than the US government.



Macro-economic view

Economic overview
Toward the end of 2007 the world entered a phase that will mark a time in history which financial companies
and banks would rather forget. Amongst others, Lehman Bros, Bank of America and Bear Sterns went into
bankruptcy, sending shockwaves throughout the world. But the worst was still to come…

In the years preceding 2007, people in the United States were afforded a lengthy period of low interest rates.
This made the cost of debt low and it unwittingly invited consumers to borrow large amounts to finance their
housing needs. When interest rates started to increase they struggled to meet the higher mortgage
repayments, with many defaulting. This forced the banks to repossess homes at an accelerating rate
throughout 2008. House prices fell dramatically and the Federal Reserve was ultimately compelled to drop
interest rates to stimulate the economy.

More importantly, in an attempt to rescue large corporations such as General Motors & Chrysler from failure,
along with its domestic banks, the US government designed a “bailout package”. In simple terms, the state
would take over some of the debt and toxic assets of these companies in order to save them from bankruptcy.
This package was evaluated and eventually approved by congress. Ultimately, the US economy did not
experience the same extent of losses as many others did internationally.



                                                                                                               9
Following a period of massive losses on global equity markets, the US stock market has recovered well.
Interest rates play a key role in the recovery and while we expect US interest rates to remain low for the next
few months, the long-term outlook remains uncertain.

Economic impact on Berkshire
The lower US interest rate environment is expected to stimulate consumer demand. This will benefit
Berkshire’s manufacturing, transportation and retail operations as business activity increases, providing a
boost to cash flows that would assist long-term growth. We expect the economy to grow at 2.5% for the
second quarter (2Q10) and for each of the remaining quarters in the 2010 financial year.

The US economy’s average growth rate of -1.3% over the last two years is showing signs of a recovery,
growing at 3.5% in the first quarter of 2010. The decline in GDP growth from late 2008 to the middle of 2009
was the biggest since the Great Depression. The Consumer Board Consumer Index® rose from 57.7 in April
this year to 63.3 in May, indicating that consumers are feeling more positive about domestic conditions and
the state of the economy.

US inflation is currently 2%, the interest rate is 0.25% and unemployment is at a hefty 9.7%, compared to
February 2008, when it was below 5%. The figure rose to an all-time high of over 10% in November 2009.
Since the recession began in late 2007, 8.4 million jobs have been lost and we expect unemployment to
remain above 9% until late 2011. Payrolls for May 2010 added 431,000 employees helped by increasing
demand and an anticipating uptick in production. This is the highest monthly increase in four years and points
towards a recovery. Consumer spending is likely to remain subdued, however, due to low levels of wage
growth.

The main drivers that could contribute towards the recovery are consumer spending, residential property
investment and inventory investment on the back of low interest rates.




                                                                                                            10
Share price performance

Berkshire Hathaway uses the S&P 500 index, to which it was recently added, to benchmark its share price
performance.

Berkshire Hathaway shares have significantly outperformed the S&P 500 since 1965. The figure below shows
the performance of Berkshire relative to the index.




Valuation

In our view, the valuation technique that best estimates the fair value of Berkshire Hathaway is a sum-of-the-
parts valuation.

Using this technique, we estimate that Berkshire has a fair value of $ 134,545 per class A share.


Sum-of-the-parts ($bn)
Insurance valuation                                                     85
Non Insurance valuation                                                 89
Market Value of Equity Investments                                      48


Total sum-of-parts                                                      222
Number of shares outstanding (mil)                                      1,650,000
Value per share                                                         $ 134,545




                                                                                                           11
Succession

It is safe to say that in many investors’ minds Berkshire Hathaway is synonymous with Warren Buffet.
However, at the age of 79, how long will the Wall Street tycoon still be around? There is no doubt that Buffet
fully trusts his existing managers and that he has capable people in place that will lead Berkshire in the future.
But the billionaire who built Berkshire through four decades of takeovers and stock picks will surely leave big
shoes to fill. Since he is both chairman and CEO of Berkshire, he would leave two positions open. The current
chairman of MidAmerican holdings David Sokol, has been mentioned as the potential next CEO. Buffet’s son,
Howard Buffet, is likely to be picked as the next chairman. Warren Buffet is also extensively involved in
philanthropic efforts and has pledged to give 85% of his Berkshire stock to five foundations.



Conclusion

Berkshire’s 1Q10 results reflected a faster than anticipated recovery. We believe the acquisition of BNSF will
increase future cash flows and be a great contributor to the growth of the business. With interest rates in the
US expected to remain low, consumers and the stock market will have an opportunity to make up some of
their recent losses and Berkshire stands to benefit from such a recovery.

For South African investors seeking international diversification we would recommend Berkshire Hathaway
based on its diversity across quality assets and impeccable performance over time.

The decision not to pay dividends in favour of reinvesting those funds elsewhere is considered positive in the
current economic climate and we expect future earnings to be relatively stable.



Statement of risk

The risk and uncertainties that directly relate to Berkshire are interest rate risk, exchange rate risk, derivative
risk, credit rating risk, demand for insurance products and catastrophic loss activity.




                                                                                                                12
   Berkshire Hathaway Equity
   Holdings
   Investment                                             Shares Held (m)              Shares in Issue            %Held                 Price $cps                Market Value                  %Holding
   American Express                                       151,610,700                  1,193,785,039              12.70%                42.60                     6,458,615,820                 13.30%
   Bank of America                                        5,000,000                    8,333,333,333              0.06%                 15.79                     78,950,000                    0.16%
   Becton Dickinson                                       1,744,128                    272,520,000                0.64%                 71.48                     124,670,269                   0.26%
   Carmax Inc                                             7,725,900                    215,206,128                3.59%                 20.37                     157,376,583                   0.32%
   Coca-Cola                                              200,000,000                  2,325,581,395              8.60%                 52.48                     10,496,000,000                21.62%
   Comcast Corp                                           12,000,0000                  2,857,142,857              0.42%                 18.35                     220,200,000                   0.45%
   Comdisco Holding Co                                    1,538,377                    4,029,274                  38.18%                8.76                      13,476,183                    0.03%
   ConocoPhillips                                         34,179,249                   1,367,169,960              2.50%                 55.80                     1,907,202,094                 3.93%
   Costco Wholesale Corp                                  4,333,363                    361,113,583                1.20%                 57.78                     250,381,714                   0.52%
   Exxon Mobil Corp                                       421,800                      4,218,000,000              0.01%                 63.13                     26,628,234                    0.05%
   Gannett Inc                                            1,740,231                    187,121,613                0.93%                 16.56                     28,818,225                    0.06%
   General Electric Co                                    7,777,900                    11,111,285,714             0.07%                 16.10                     125,224,190                   0.26%
   Glaxo Smith Kline Plc                                  1,510,500                    2,517,500,000              0.06%                 35.20                     53,169,600                    0.11%
   Home Depot Inc                                         2,757,898                    1,723,686,250              0.16%                 31.43                     86,680,734                    0.18%
   Ingersoll Rand Co Ltd Bermuda                          5,636,600                    320,261,364                1.76%                 39.99                     225,407,634                   0.46%
   Iron Mountain Inc (DE)                                 7,794,800                    226,593,023                3.44%                 24.02                     187,231,096                   0.39%
   Johnson & Johnson                                      23,891,448                   2,389,144,800              1.00%                 59.13                     1,412,701,320                 2.91%
   Kraft Foods Inc                                        106,734,745                  1,212,894,830              8.80%                 29.94                     3,195,638,265                 6.58%
   Lowes Companies Inc                                    6,500,000                    1,477,272,727              0.44%                 22.51                     146,315,000                   0.30%
   M & T Bank Corp                                        5,563,281                    97,945,088                 5.68%                 94.45                     525,451,890                   1.08%
   Moody’s Corp                                           30,783,876                   229,217,245                13.43%                21.21                     652,926,010                   1.34%
   NRG energy Inc                                         6,000,000                    256,410,256                2.34%                 23.60                     141,600,000                   0.29%
   Nalco Holdings Co                                      9,000,000                    138,248,848                6.51%                 22.45                     202,050,000                   0.42%
   Nestle                                                 3,400,000                    3,777,777,778              0.09%                 47.70                     162,180,000                   0.33%
   Nike                                                   7,641,000                    492,967,742                1.55%                 74.35                     568,108,350                   1.17%
   Procter & Gamble Co                                    79,096,784                   2,727,475,310              2.90%                 61.10                     4,832,813,502                 9.95%
   Republic Services Inc                                  10,827,700                   496,683,486                2.18%                 31.29                     338,798,733                   0.70%
   Sanofi-Aventis                                         3,903,933                    205,470,158                1.90%                 30.53                     119,187,074                   0.25%
   Torchmark Corp                                         2,823,879                    82,811,701                 3.41%                 52.69                     148,790,185                   0.31%
   U.S Bancorp New                                        69,039,426                   1,725,985,650              4.00%                 23.67                     1,634,163,213                 3.37%
   USG Corp                                               17,072,192                   472,913,906                3.61%                 15.01                     256,253,602                   0.53%
   United Parcel SVC Inc                                  1,429,200                    1,020,857,143              0.14%                 62.17                     88,853,364                    0.18%
   Wal-Mart Stores Inc                                    39,037,142                   3,903,714,200              1.00%                 51.02                     1,991,674,985                 4.10%
   Washington Post Co                                     1,727,765                    9,400,245                  18.38%                456.09                    788,016,339                   1.62%
   Wells Fargo & Co New                                   320,088,385                  4,924,436,692              6.50%                 27.94                     8,943,269,477                 18.42%
   Wesco Fin                                              5,703,087                    7,119,959                  80.10%                345.05                    1,967,850,169                 4.05%
   Listed Investments                                                                                                                                             48,556,673,856                100.0%




Disclaimer:
The information and opinions contained in this document are recorded and expressed in good faith and in reliance on sources believed to be credible. Barnard Jacobs Mellet Securities (Proprietary)
Limited ("BJM") makes no representations and gives no warranties of whatever nature in respect of the document and its contents including but not limited to the accuracy or completeness of any
information, facts and/or opinions contained therein. The information contained in this document including any illustrations, forecasts or hypothetical data, is provided for information purposes only and is
not guaranteed. Past performance is no indication of future performance, and actual events may differ materially from that which is contained in the information. The information contained in this
document may not be suitable for the purposes of all investors and investors should independently evaluate the information contained in this document and consult with a financial advisor where the
investor believes necessary in order to make their own financial decisions. The information contained in this document does not constitute an offer, or the solicitation of an offer, to enter into any
transaction, nor does it constitute any recommendation, guidance or proposal to enter into any transaction.

Neither Barnard Jacobs Mellet Holdings nor Barnard Jacobs Mellet Private Client Services will accept any responsibility for any investment decisions based on the information and opinions
contained in this document. Barnard Jacobs Mellet Asset Management is a division of Barnard Jacobs Mellet Private Client Services (Pty) Ltd (Reg no: 1996/011732/07), a member of the JSE and an
authorised credit and financial services provider.




                                                                                                                                                                                                         13

				
DOCUMENT INFO