Warren Buffett made the biggest deal of his life with his acquisition of Precision Castparts (PCP.N).
Precision Castparts makes parts for the likes of the airline, power and oil-and-gas industries.
Buffett is paying $US32 billion – that makes it Berkshire Hathaway’s largest deal ever.
As with the ANZ capital raising, there has been significant commentary around the price Buffett paid for the business.
As you would know Buffett is a value investor, renowned for focusing on paying below the intrinsic value of companies and shares.
But is Buffett getting value?
Buffett is paying $US235 per share for Precision. That’s a 21 per cent premium to the existing share price, and a price to earnings (PE) multiple of 17.5 times.
“This is a very high multiple for us to pay,” Buffett told media. But if you take a closer look, the price Buffett is paying is 10 per cent below what shareholders were paying 6 to 9 months ago. And it is recommended by the Precision Board!
Buffett is also paying the mid-point of our StocksInValue 2015 intrinsic valuation of $US218.94 and our forecast 2016 valuation of $250.
So in our view Buffett is buying a long-term growth company but at a discount to value in twelve months’ time.
In an exclusive report published in May, StocksInValue’s highlighted PCP’s attractiveness to its members. ‘We are attracted to the business’ strong competitive position and prospects for growth over the long term’. This research led to it being added to both our International model portfolio, as well as a substantial investment by our listed investment company, Clime Capital (CAM.AX).