Grove 1 Valuation - wholly owned non-insurance companies

Alright! I'm ready to talk about my valuation for the biggest grove of the 5 Berkshire groves (see my previous posts on Berkshire if this doesn't make sense)

Grove 1:

I'll start with #1. Here's specifically what Buffett said to do:

So we won't need to account for the taxes, because he said right there that they won't sell their wholly owned businesses.

Grove 1 consists of 51 non-insurance operating businesses (!!). I'll be looking at the biggest ones ("redwoods" as Buffett calls them)

(OP's note: I was stuck trying to determine owner's earnings for BNSF for like....3 days. I fell into my old habit of trying to be penny precise in my valuations... that is not a smart move.)

Instead of determining Owner's Earnings, Berkshire gives us a very close approximation (in my opinion) - "Net earnings attributable to Berkshire shareholders"

Alright! That's something we can discount the future earnings.

Grove 1 consists of BNSF, BHE, and Manufacturing, Service and retailing (MSE)... this prevents me from having to count the 'sticks' of Berkshire and instead focus on the redwoods

I assumed a 2% growth rate for BNSF - based on expected GDP growth in the US (conservative, and below their 3-year CAGR of 2.49%)

I assumed a 6% growth rate for BHE. The 3-year CAGR is 19.51%, but those numbers include pre-tax Wildfire loss accruals.

(I had to look up what a pre-tax Wildfire loss accrual was. An accrual means a company records an expense when it becomes likely and estimable, even if the cash hasn’t been paid yet. So Berkshire is saying, “We expect to owe this much money because of wildfires, so we are recognizing the loss now.”)

I assumed a 1% growth rate for MSE... which is certainly conservative, but it has also only grown at a .71% CAGR for the past 3-years (I expect it to perform better in the future)

Here's the output of my model:

That puts a pre-margin of safety valuation on Grove 1 at $386B.

I'm liking what I'm seeing so far!

The other groves should be susbstantially easier. I'm hoping to have my full valuation done this weekend.

Hope everyone has a great weekend! Feel free to ask questions or challenge my thinking :)