BRK Initiation Nomura 4-30-13

Key company data: See page 2 for company data and detailed price/index chart.
Berkshire Hathaway Inc. BRKa.N BRK/A US .

AMERICAS INSURANCE

EQUI TY RESEARCH
S

Initiating on BRK/A with a Buy, $184,000 TP
Great Years Ahead for
Berkshire Hathaway

April 30, 2013
Relative rating
Starts at
Buy
Target price
Starts at
USD
184,000.00
Closing price
April 26, 2013
USD
160,618.00
Potential upside
+14.6%

Double-Digit Earnings Growth to Drive Value Creation
Berkshire Hathaway (BRK/A) should reach record-high operating EPS
over the next two years, reaching nearly $16bn by 2014 (12.7% CAGR),
with continued growth thereafter. In particular, GEICO, BNSF and the
collection of Manufacturing, Service and Retail businesses (roughly
70% of 2013E earnings) should see record-high earnings.
Our Berkshire model assumes modest U.S. GDP growth near 3%, but
with over 85% of the companys revenues in the U.S., anything better
for the U.S. would mean even greater Berkshire earnings.
Berkshire has a collection of best-in-class companies, which positions it
well in nearly any environment. From strong brands to low-cost
distribution models to dominating market shares or limited competition,
all of the major Berkshire businesses have sustainable competitive
advantages, in our opinion.
Accretive Cash Deployment Is Just a Bonus
Our EPS and book value projections give no credit for the deployment
of $35bn of cash in the hands of Mr. Warren Buffett. Given Berkshires
reputation and financial strength, we believe there is potential for more
high-profile deals with lucrative terms, such those struck with Goldman
Sachs, Bank of America, or most recently, Heinz.
The Berkshire board has pledged to repurchase BRK/A shares at 1.2x
book, which we believe provides a solid floor for investors.
Valuation Does Not Reflect the Fundamental Outlook
BRK/A is trading at 1.3-1.4x book value, below its historical mean of
near 1.5x and below our sum-of-the-parts valuation of $184,000.
We expect that the discounted valuation reflects concerns of whether Mr.
Buffett can meaningfully continue to grow the huge Berkshire empire
through his investing acumen, but this ignores the significant operating
earnings of the empire that already exists. Operating company earnings
drove approximately two-thirds of BRKs intrinsic value creation in 2012,
but we expect that to grow to be over 80% through 2014.
Source: Company data, Nomura estimates
Research anal ysts

Americas Insurance
Clifford Gallant, CFA - NSI
clifford.gallant@nomura.com
+1 415 445 3865
Matthew Rohrmann - NSI
matthew.rohrmann@nomura.com
+1 212 298 4234

December year-end 2012A 2013E 2014E
Currency USD Prev Old New Old New
Revenue (m) 162,463 A 172,369 E 186,840 E
Oper . Income (m) 12,597 A 14,353 E 15,995 E
1Q Oper . EPS 1,614.23 A 1,958.03 E 2,189.29 E
2Q Oper . EPS 2,252.48 A 2,160.40 E 2,424.36 E
3Q Oper . EPS 2,057.28 A 2,297.12 E 2,550.17 E
4Q Oper . EPS 1,704.29 A 2,280.52 E 2,526.78 E
Annual Oper . EPS 7,628.56 A 8,696.07 E 9,690.60 E
See Appendix A-1 for analyst
certification, important
disclosures and the status of
non-US analysts.
Nomura | Berkshire Hathaway Inc. April 30, 2013

2
Key data on Berkshire Hathaway Inc.
Rating
Stock Buy
Sector Not rated

Relative performance chart
Source: Thomson Reuters, Nomura research

Performance
(%) 1M 3M 12M
Absolute 3.2 9.0 33.1
Relative to S&P 500 Index 1.9 3.6 19.8

Market data
Current stock price (USD) 160,618.00
Market cap (USD - mn) 143,431.9
52-week low (USD) 118,000.00
52-week high (USD) 161,959.00
Shares outstanding (mn) 0.89
Source: Thomson Reuters, Nomura research


3
Investment Summary
We Initiate Coverage with a Buy Rating, $184,000 Target Price
Strengthening U.S. Consumer and Business
Given that Berkshires companies are generally best of breed and leveraged to the U.S.
economy, we expect that as American businesses and consumers regain strength, the
company will generate impressive operating earnings, including double-digit earnings
growth through 2014. The transition to operating company earnings should drive book
value growth, and Berkshires reputation and financial strength should enable it to strike
deals on favorable terms. Our multiple-based, sum-of-the-parts valuation results in our
$184,000 target price and supports our Buy rating.
Growing Earnings Power
We expect Berkshires earnings to ramp up quickly and to approach $16bn by 2014
(12.7% CAGR). Our model assumes modest U.S. GDP growth of near 3%, but with over
85% of the companys revenues in the U.S. and serving American consumers and
businesses, better growth for the U.S. would further enhance Berkshires earnings
power.

In the Underwriting businesses, roughly 24% of revenues, GEICO continues to be a
share gainer and should produce double-digit earnings growth, while unit count growth,
driven by a growing economy, should help power GenRe. BHRG is aggressively
entering the Lloyds market, which should further propel its growth rate over the next few
years.

In the non-underwriting businesses, we expect combined earnings growth of roughly
11-14% from the various business segments. The railways are benefiting from the U.S.
energy boom, economies of scale and the growth in online consumer spending as more
consumers take advantage of low-cost shipping. The Manufacturing, Service and Retail
(MSR) businesses are also well positioned for growth as both the American consumer
and small businesses increase spending.

The Bonus of Cash Deployment
We are emphasizing the transition to operating company earnings as the driver of value.
That said, we believe our EPS and book value estimates are conservative, as they give
no credit to the deployment of $35bn of cash currently on hand. Given Berkshire's
reputation and financial strength, we believe there is a likelihood for additional deals with
lucrative terms similar to those high-profile ones struck with Goldman Sachs, Bank of
America, or most recently, Heinz.

Additionally, we note the board has pledged to repurchase shares at 1.2x book value,
essentially creating a downside floor to the share price given its current valuation of
roughly 1.4x book value.

Undervalued Shares
We attempt to value Berkshire Hathaway using a sum-of-the-parts valuation
methodology that assumes completion of the pending Heinz purchase. We use average
peer multiples for most of the operating companies, but we have assigned premium
valuations to reflect the strength of the franchises, where warranted.

Our assumptions lead us to value the shares at $184,000 per share, representing 15%
upside potential from current levels.


4
To Investors of Berkshire Hathaway Inc.
Berkshire Hathaway is an enormous and complicated company, in a way that is often
underappreciated. Perhaps its the chairmans silver-tongued ability to describe an
esoteric business such as loss portfolio transfer in a folksy, business-for-dummies
manner. Perhaps its the companys scant disclosure. Perhaps its the belief that too
much attention to the details would leave one too focused on the trees and completely
lost in the woods.
Nonetheless, we attempt to analyze some sections of the proverbial elephant and make
our best estimation of Berkshire Hathaway as a whole. To give context to our work, we
stress that Berkshire is huge. Look at some of the companys highlight bragging points:
GEICO is the No. 3 auto writer in the U.S., ranked by 2012 net written premiums. With
over 11 million policyholders, it has been growing premiums in the high single digits,
with low 90s combined ratios.
Combined to be the worlds No. 3 reinsurer, GenRe wrote nearly $6bn of premiums in
2012, while Berkshire Hathaway Reinsurance Group more than doubled that volume.
BNSF Railway is a leading freight transporter with nearly 400 different railway lines,
covering 32,500 route miles in the U.S. and Canada and growing revenue in the high-
single digits.
MidAmerican Holdings has 7 million energy customers throughout the Midwest and the
western U.S. and stable margins in the high teens.
Berkshire owns hundreds of manufacturing and service businesses, such as building
products (ACME, MiTek), leisure vehicles (Forest River), and chemicals (Lubrizol); it is
a leading wholesale distributor for Wal-Mart and 7-Eleven.
Major brands include Dairy Queen, Sees Candies, Brooks Sports, Fruit of the Loom,
and Benjamin Moore.
Berkshire also is a major participant in businesses such as real estate, furniture,
jewelry, and newspaper publishing and has material positions in companies, such as
Coke, Wells Fargo, IBM, and soon, Heinz.
Most of these companies were at one time stand-alone public companies with teams of
analysts pouring over detailed quarterly reports and SEC filings. Berkshire also owns
dozens and dozens of other businesses, nearly all of material size within their
competitive marketplaces. Considering the companys scope its no wonder that the
details are often underappreciated.
As Mr. Buffett once said when discussing the problem of diversification back in
Berkshires early days, The problem with having a harem of women, is that you dont get
to know any of them very well (Berkshire Hathaway annual report, 1984).
Given the immense scale and complex nature of this company, we focus on the key
highlights and drivers of each business segment in this report. For a more detailed view
into the company, please see our model.
The Berkshire Empire: an American Empire
A rising tide lifts all yachts (Berkshire Hathaway annual report, 1995).
While Berkshire may be huge and global, the companys businesses are largely focused
on the United States. Nearly all of the various businesses headquarters are in the U.S.
and the major assets and revenues are also largely American. We estimate that over
85% of the companys revenues are made in the U.S.A.
In Fig 1, we show how over the past few years, Berkshires ROE and the U.S. GDP have
closely tracked each other. And with the addition of companies such as BNSF, Lubrizol
and Heinz folding into the mix, the correlation (r-squared =~0.8) is likely to grow.


5
Fig. 1: BRK/A ROE vs. U.S. GDP

Source: Company data, BEA, Nomura estimates

In addition, more than simply producing American brands or being U.S.-based,
Berkshires businesses are typically in industries that serve other American industries.
From insurance to manufacturing to transportation, Berkshires businesses are often the
oil in the machine that powers much of the American economy. As the American
economy improves (we assume ~3% GDP growth), Berkshires fortunes will rise as well,
we believe.

Fig. 2: Berkshire Hathaway Business Segments
2012 revenue contributions, %
Source: Company data, Nomura research
Insurance/Reinsurance
The insurance/reinsurance businesses have provided the float that has allowed the
genius of the companys founder to flourish. We employ our years of experience
following the insurance sector to analyze the major businesses of GEICO and the
companys reinsurance business (although Berkshire includes smaller specialty insurers,
too).

0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
6.0%
6.5%
7.0%
7.5%
8.0%
2010 2011 2012 2013E 2014E
BRK.A ROE U.S. GDP
Burl i ngton Northern
Santa Fe, 12.8%
Uti l i ti es & Energy
(Mi dAmeri can), 7.2%
Marmon, 4.4%
McLane Company, 23.0%
Other Manufacturi ng,
16.5%
Other,
5.0%
Retai l , 2.3%
Fi nanci al Products, 2.5%
GEICO, 10.3%
General Re, 3.6%
BHRG, 6.0%
BHPG, 1.4%
Ins. Inv. Inc., 2.8%
Insurance Group, 24.0%

6
GEICO, the Ubiquitous Auto Insurer
The success of GEICO is impressive. The U.S. personal auto insurance industry is a
fully mature market. With nearly every driver legally bound to buy insurance, the only
industry growth comes with population growth (a little less than 1% a year). Yet GEICO
has managed to report mid-to-high single-digit premium growth year after year.
The companys low-cost distribution model has emerged as the winning model of the
industry. GEICO is a 100% direct-to-consumer auto insurer. No agent commissions are
paid and much of that savings is passed on to the customer (not coincidently, 15% or
more). The model is simple but also difficult to replicate due to the importance of scale,
brand, and issues around channel conflict for other insurers. Travelers, for instance, an
industry powerhouse, has struggled for several years to build a direct auto business and
remains below critical mass. Allstates attempt was also a disappointment, angering
their agents, and eventually resulting in the high-priced acquisition of Esurance, the No.
3 and last remaining stand-alone direct auto insurer.

Fig. 3: Top 10 U.S. Personal Auto Insurance Market Share
Based on 2012 direct written premium
Source: SNL, Nomura research

We would caution that GEICO is not without a direct rival. Progressive, just behind
GEICO in the rankings, has at times surpassed GEICOs growth rates. Progressive is
famed for an innovative and aggressive culture that first developed credit-scoring as an
underwriting tool and even led the development of widespread direct distribution models,
including Internet sales, which power GEICO today. Currently, Progressive is
threatening to shake up the industry with the development of telematics, a tool that will
monitor policyholder driving habits and price accordingly. GEICO management has
publicly declared little interest in such underwriting tools, but, in our view, telematics has
the potential to create a major sea change in the auto insurance industry.
We expect GEICO to grow premiums in the high-single-digit range through 2014 and by
leveraging a largely fixed expense structure to increase margin through double-digit
earnings growth. The bigger GEICO gets, growing faster than the industry naturally
becomes more challenging; but as consumers become more comfortable buying
insurance online and with few direct competitors and GEICOs low-cost advantages, we
expect better-than-industry growth rates through at least 2018.
Reinsurance
Berkshire has two major reinsurance operations in General Re (GenRe) and Berkshire
Hathaway Reinsurance Group (BHRG). General Re, a leading direct global reinsurer,
was acquired in 1998 and proved to be one of Berkshires more difficult acquisitions.
The company required significant reserve additions and was affected by a high-profile
legal case against a former manager. These issues, however, are behind it. Today,
GenRe is fulfilling its promise of controlling significant market share but still maintaining
underwriting discipline. The combined P&C and life/health operations have reported net
underwriting profits in each of the past six years despite major loss quarters due to
events such as the earthquake in J apan in 2011 or Hurricane Sandy in 2012. GenRes
Rank Company 2012 2011 2010
1 State Farm Mutl Automobile Ins 18.39 18.61 18.65
2 Allstate Corp. 10.01 10.31 10.67
3 Berkshire Hathaway Inc. (GEICO) 9.59 9.07 8.50
4 Progressive Corp. 8.27 7.93 7.70
5 Farmers Insurance Group of Cos. 5.89 5.89 5.96
6 USAA Insurance Group 4.84 4.60 4.36
7 LibertyMutual 4.73 4.54 4.49
8 Nationwide Mutual Group 4.09 4.13 4.29
9 Travelers Companies Inc. 1.94 2.08 2.10
10 American FamilyMutual 1.89 1.96 2.10
Market Share (%)

7
disclosure regarding some of its operations such as the Life/Health business, which
produces $3bn of premiums, is limited.
As prices in the reinsurance markets wane, we expect a flat top line for GenRe, with
margins holding steady.

Fig. 4: General Re Net Written Premium and Combined Ratios
$ in millions

BHRG, led by Mr. Buffetts favored manager, Ajit J ain (to whom shareholders have been
urged to bow deeply), has been a spectacular success for Berkshire and is unique
among the major businesses as the only significant home-grown operation. Unlike a
typical reinsurer, BHRG is focused on one-off or special situation transactions. A BHRG
contract is usually costly, but as the head of Lloyds once quipped after buying a major
cover, Our owners wanted to sleep at night, so we bought the worlds best mattress,
referring to BHRGs financial strength and reputation. When an insurer wants regulators
and investors to not worry about an issue, they call Mr. Ajit, as AIG did when it
purchased asbestos protection. In addition to attractive underwriting terms, BHRG has
significantly added to Berkshires float.
With revenues that are large and often lumpyBHRG could report several billions of
dollars of premiums written one quarter and zero the nextforecasting results is a
challenge: 2013 likely will be weighed down by the expiration of the Swiss Re quota
share contract, but we know the company was active during the April renewals in J apan
and has made recent headlines with its entry into Lloyds with a major quota share
written through Aon.
Float
When discussing the underwriting operations, the concept of float is important to
understanding Berkshire. Most insurers and reinsurers attempt to position their
investment portfolios conservatively, largely in fixed income investments with durations
that match liabilities. Experience (stemming from an industry crisis in the 1970s) and
regulatory pressure force this discipline. Berkshire, however, views its claims liabilities
as assets to be invested to earn an attractive return before needing to be paid out. For
this reason, the company has a special taste for long-duration liabilities such as
asbestos. Mr. Buffett has described his views on float at length in his annual reports.
As critical as float may have been over the first several decades under Mr. Buffetts
leadership, we view that its importance has declined as the company has grown. As we
later discuss, with the company buying 100% of large companies such as Lubrizol,
Berkshire is becoming less and less of a quasi-investment vehicle and more of an
operating company.

80.0%
85.0%
90.0%
95.0%
100.0%
105.0%
110.0%
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E
GenRe NWP($mm) GenRe CR (%)

8
Railroad Business
Make Way for Railways: BNSF Railwaythe Former
Burlington Northern Santa Fe
While railroads may have the reputation of being a business of yesteryear, the railway
industry currently is experiencing a boom. Growth in U.S. energy demand has been one
major driver, but the technological advances of things like fleets of hot trains that
deliver consumer products for FedEx or Amazon have also contributed to the growth.
Capital spending by the freight railway companies is at new highs (see chart below), as
the industry expects increasingly long-term demand.

Fig. 5: Capital Expenditures by the U.S. Railroad Industry and Revenue Peer Comparison
$ in billions
Source: Association of American Railroads, Wall Street Journal, Nomura estimates

While the ups and downs of BNSFs business are affected by the demand levels for its
major products shipped, such as coal, agricultural products and industrial products, there
has been relatively consistent growth in recent years despite the fluctuations of the U.S.
economy. (Revenue and EBT CAGRs have been around 13-15% and we expect that to
continue through 2014.) This has been driven by the rise in price of gasoline, making rail
more efficient versus trucking, as well as the large amounts of capital improvements in
the rail lines themselves. To illustrate efficiency, we note that in 2012 the rail industry
could move 1 ton of freight 476 miles on one gallon of fuel on average, with the
economies of scale favoring the largest players; this is a 100% improvement over 1980.
Of the major class 1 railroad companies, BNSF is really only challenged by Union Pacific
(UNP) in terms of scale and performance. BSNF and UNP rank first or second in just
about every comparable operating metric, including total cars on line, average speed,
tonnage moved, etc., as well as financial metrics including total revenues and margins.

Fig. 6: BNSF Revenue and Margin History
$ in millions
Source: BRK/A company reports, Nomura estimates

$0
$2
$4
$6
$8
$10
$12
$14
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E
BNSF Revenue BNSF EBT Margin (%)

9
The scale advantages are obvious, and with bigger meaning better, the large amounts of
capex being deployed will likely only further the gap between BNSF and UNP versus the
other competitors, translating into even better revenues and margins. BNSF was
estimated to be worth approximately $34bn when it was taken out. Given that UNP
trades at approximately ~17x earnings currently, we have used our similar multiple for
BNSF, equating to a value of north of $60bn, which is in our sum-of-the-parts valuation
analysis.
Utilities and Energy Businesses
Turn on the Lights: MidAmerican Holdings Company
Berkshire owns 89.8% of MidAmerican, a major global utility and energy company.
Businesses include regulated utilities (PacifiCorp and MidAmerican), natural gas
pipelines and a UK electric company (Northern Powergrid). MidAmerican also includes a
real estate brokerage business. While growth rates slowed and margins tightened
during the recent recession, the energy businesses proved to be remarkably stable in
face of the downturn due in part to the regulated aspect of the business.

Fig. 7: Utilities and Energy Revenue History
$ in millions

Coming off a slow-growth period during the prolonged economic weakness, the company
should see a double-digit rebound in growth in 2013, slowing to a mid-single-digit rate
thereafter, we believe.
Manufacturing, Service and Retail
The Manufacturing, Service and Retail (MSR) segment of Berkshire, accounting for
approximately a third of Berkshires earnings, groups together a large number of diverse
businesses, from NetJ ets to Sees Candies. Marmon, the largest operating company,
includes approximately 150 manufacturing and service businesses itself and is organized
into 11 business sectors, with the largest being Union Tank Car, which leases tank cars
to shippers such as oil companies. McLane is a wholesale distributor of consumer
goods to retail stores. Other well known businesses are Acme Building, Benjamin
Moore, J ohns Manville, MiTek, Shaw, Lubrizol, Businesswire, TTI, Dairy Queen, Buffalo
News, Borsheims and Helzberg J ewelers, Pampered Chef, and the list goes on. Among
the major businesses of Berkshire and due to the more consumer-sensitive aspect of the
retail operations, MSR has shown the most economic sensitivity among the portfolio of
Berkshire segments, although, as we show below, profitability has remained intact.

15.5%
16.0%
16.5%
17.0%
17.5%
18.0%
$10,500
$11,000
$11,500
$12,000
$12,500
$13,000
2010 2011 2012 2013E 2014E
Utilities Total Revenue Utilities EBT margin (%)

10

Fig. 8: MSR Segment Revenue and Margin History
$ in millions
Source: BRK/A company reports, Nomura estimates

The businesses in MSR enjoy advantages that include size and brand. McLane, for
example, is the largest distributor to Wal-Mart. Brooks running shoes are known as
costly but geared for the running geeks. Nebraska Furniture Mart is the largest home
furnishing store in North America. As the U.S. consumer slowly recovers, we expect
mid-teen earnings growth through 2014 at MSR.
Finance and Financial Products
The Weapons of Financial Destruction
The smallest of the major segments, FFP includes rental companies (XTRA and CORT),
the leading producer and financer of manufactured homes (Clayton), Berkadia (a
commercial mortgage 50% joint venture with Leucadia) and Berkshires position in the
derivatives market. While the derivatives portfolio had received negative press due to
Mr. Buffetts prophetic weapons of mass financial destruction comments in regard to
derivatives, Berkshires portfolios are longterm, plain vanilla credit default and equity
index put options. While the portfolios value has shown the expected volatility over the
past several years, there has been little cash collateral payments required, much as Mr.
Buffett claimed when he first wrote the contracts. Given the difficulty in modeling the
returns of the equity-market linked derivatives, we have modeled for flat earnings in this
segment.
Heinz
Berkshire recently announced its intension to purchase 50% of H.J . Heinz (of ketchup
fame). Berkshire will invest $4bn for common equity in the holding company and $8bn in
preferred shares (which will pay a 9% dividend to Berkshire) with warrants to buy an
additional 5% of equity. A small group of investors led by Brazilian businessman J orge
Paulo Lemann will own the other 50%.
All I Want in Life Is an Unfair Advantage
A growing capital base is a problem like aging, it is better to have it grow than to be
solved (Berkshire Hathaways annual report, 1988).
Much like Mr. J ain enjoys at BHRG, Mr. Buffett has a capital base and reputation that
gives him a favored perch from which to make investments. When a financial institution
wants the worlds most credible backstop, Mr. Buffett gets a call. The terms and
structures of Berkshires investments in Goldman Sachs, GE Capital and Bank of
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
2010 2011 2012 2013E 2014E
Manufacturing, Service & Retailing (MSR) Revenue MSR EBT Margin (%)

11
America, included attractive cash dividends and warrants. For Berkshire, the deals were
relatively low risk and high return.
After Berkshires purchase of Heinz, we estimate that the company will hold $35bn of
cash, well above the $20bn cash cushion that Mr. Buffett has pledged to hold. Guessing
whats next is exceedingly difficult, although we can narrow down the possibilities. Mr.
Buffett does not go looking for something that Berkshire needs. Add-on deals are done
regularly, but typically by the operating subsidiaries themselves. Last year, for example,
Marmon made several low-profile acquisitions. Mr. Buffett has also declared that there is
no tax or accounting need for more underwriting operations, although it remains a
business he clearly likes. He also prefers U.S. businesses and likes businesses in which
it is easy to see value add for the customer. We would expect deals of significance, at
least $10bn, to be a threshold. In addition, while Mr. Buffett has a reputation for value
investing, he is not known for buying broken companies in need of restructuring.


12
Balance Sheet
Unparalleled Financial Strength
In God we trust, all others pay cash (Berkshire Hathaways annual report, 2008).
In terms of financial strength, Berkshire has few peers. Total cash on the balance sheet
was $47bn at year-end 2012, $12bn of which was recently put into Heinz (an investment
expected to pay a $720m annual cash dividend). Total notes payable was $62.7bn,
$36.2bn of which was operating debt for the railway business. Shareholders equity is
$191.6bn, making any calculation of debt ratios look good. Total interest expense in
2012 was $2.7bn versus EBITDA of over $30bn. With pretax income of $22bn in 2012
and depreciation expense of $5.1bn, free cash flow is strong. Berkshire earns its AA+
S&P rating.

Fig. 9: Consolidated Balance Sheet
$ in millions, except BVPS

2008 2009 2010 2011 2012
Assets - Insurance & Other
Cash & cash equivalents 24,302 28,223 34,767 33,513 42,358
Fixed maturities 27,115 35,729 33,803 31,222 31,449
Equity securities 49,073 56,562 59,819 76,063 86,467
Other Investments 18,419 29,440 19,333 13,111 16,057
Total Investments - Insurance & Other 118,909 149,954 147,722 153,909 176,331
Property, plant & equipment 16,703 15,720 15,741 18,177 19,188
Goodwill 27,477 27,614 27,891 32,125 33,274
Total Insurance & Other Assets 198,771 227,297 232,901 250,319 278,096
Total Rai l road, Uti l i ti es & Energy Assets 41,570 44,771 113,605 117,377 123,908
Total Fi nance & Fi nanci al Products Assets 27,058 25,051 25,723 24,951 25,448
Total Consol i dated Assets 267,399 297,119 372,229 392,647 427,452
Li abi l i ti es - Insurance & Other
Losses & LAE 56,620 59,416 60,075 63,819 64,160
Unearned premiums 7,861 7,925 7,997 8,910 10,237
Life & Health insurance benefits 3,619 5,228 8,565 9,924 10,943
Accounts payable 14,987 15,530 15,826 18,466 21,149
Notes payable and other borrowings 4,349 4,561 12,471 13,768 13,535
Total Insurance & Other Li abi l i ti es 87,436 92,660 104,934 114,887 120,024
Total Uti l i ti es & Energy Li abi l i ti es 25,320 25,474 43,993 45,596 49,269
Total Fi nance & Fi nanci al Products Li abi l ti es 30,656 23,975 24,016 25,399 22,077
Income taxes, principally deferred 10,280 19,225 36,352 37,804 44,494
Total Consol i dated Li abi l i ti es 153,692 161,334 209,295 223,686 235,864
Minority Shareholders Interest 4,440 4,683 5,616 4,111 3,941
Berkshi re Hathaway Sharehol ders' Equi ty 109,267 131,102 157,318 164,850 187,647
Book Val ue Per Share $70,529.68 $84,486.63 $95,452.98 $99,860.31 $114,213.81

13
Risks
An investor may be tempted to see Berkshire as a safe investment, given its
aforementioned financial strength, track record and the strength of its franchises. Overall,
we would agree, certainly on a relative basis. Nonetheless, no investment is without risk
and Berkshire may have some risks unique to itself. We highlight our major concerns.
A Weak U.S. Economy Is a Greater Risk than Weak Equity Markets
With countless books written on the subject, we need not recount Warren Buffetts
investment achievements. Suffice to say that he is legendary, the Babe Ruth of
investing. However, as the company has grown, Berkshires major buys are no longer
percentages of public companies, but 100% of entire companies. Going forward, we
expect that the operating earnings of Berkshire will outweigh the changes in the equity
portfolio. Over the past five years, operating company earnings, rather than the equities
securities book, was the key driver of value creation. (We do not account for new cash
into the equity portfolio or make adjustments for acquisitions.)

Fig. 10: Shareholders Equity, Equity Investments and Investment Income
$ in millions

Berkshires long-term fate is tied to that of the U.S. economy. Should the future of the
U.S. be anemic growth and weak industrial output, Berkshire will be hard pressed to
show strong operating performance and we would expect subpar value creation.
Significant Disruption in a Core Operating Business
At this time, the outlook for each of Berkshires major businesses appears sanguine;
however, the implosion of any one of the major businesss could have the potential to
drag on the long-term performance of the group. Unfortunately, the causes of such
implosions are difficult to forecast. In reinsurance for example, a major liability crisis
(such as another asbestos disaster) or a series of major catastrophes could significantly
impact the overall companys financial position or at least be a distraction to
management and investors alike. As Mr. Buffett once quipped, A small leak can sink a
great ship (Berkshire Hathaways annual report, 2000)
Public Disclosure of Details in Individual Businesses Is Weak
CEOs too often see shareholders as patsies, not partners (Berkshire Hathaways
annual report, 2001).
While Berkshires management team may be the role model for excellence in sound
stewardship, management teams do and will change. Berkshire is an enormous company,
but its quarterly statement is typically only 40 pages long. The 2012 annual report with 10-K
is a relatively paltry 108 pages. Basic data such as quarterly net premiums written or any
detail on the life reinsurance business is non-existent. Mr. Buffett has argued that a good
CEO needs to judiciously decide what are the most relevant details to disclose to
shareholders; but frankly, we would prefer to see more data in order to keep them honest.
5.0%
15.0%
25.0%
35.0%
45.0%
55.0%
65.0%
75.0%
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
2008 2009 2010 2011 2012
BRK Shareholders' Equity ($mm) Equity Securities ($mm) Inv Inc PT/ EBT Earnings (%)

14
Weak Centralized Risk Management
Berkshire has no centralized risk management function aside from Warren Buffett,
Charles Munger (vice chairman) and Marc Hamberg (CFO). Their approach is hands
off, allowing risk management be conducted within each operating subsidiary. As a
result, there is no one who looks to see if BHRG and GenRe are accepting similar large-
property risks. In addition, there is no senior manager who dictates an interest rate
forecast. As a result, an underwriter at GenRe, an underwriter at BHRG, and the
management at MidAmerican or BNSF could be making financial decisions or setting
reserves or underwriting terms and conditions based upon very different macro
expectations. In fact, in the life reinsurance business in 2011 and 2010, GenRe was
reporting favorable reserve development from better-than-expected mortality trends,
whereas at the very same time, BHRG reported reserve additions for worse-than-
expected trends. In the eyes of senior management, Berkshires businesses are diverse
and run by excellent managers such that a systemic flaw could not easily arise. While
that may appear to be true, the reason modern companies often have a centralized risk
management team is because blind-spot risks are hard to identify.
We point to the unfortunate case Mr. David Sokol, who was forced to resign from the
company in 2011 over insider trading allegations. A central risk management team that
included a compliance officer could have been useful in preventing the activity, which led
to Mr. Sokols departure.
Losing the Oracle of Omaha
This concern is the subject of much speculation and debate. We objectively view (we
are not members of any fan clubs) that while Mr. Buffett will one day naturally be
replaced, his departure will be a great loss to the company.
First, his investment track record speaks for itself and there is a chance his genius as an
investor may never again be replicated. Second, his stature in the public eye and in both the
business and political world is so high that he now enjoys a favored perch from which to
make investments. Third, there has been surprisingly little criticism of Berkshire practices
such as the lack of disclosure, which may change when the beloved leader moves on.
In addition, we would highlight that one often overlooked aspect of Mr. Buffett is that he
is a great leader. He publicly positions himself as a simple portfolio manager, able to
make astute big picture assessments, while the real work is done by what he credits to
be a magnificent management team. However, when we had the opportunity to grill Mr.
Buffett about detailed aspects of his businesses, we were surprised at his quick ability to
respond with specifics and not defer to his managers. We expect his eye can see the
stitches on the ball more than he concedes. Furthermore, we have had the opportunity
to interview many Berkshire managers and each and every one expressed adoration of
Mr. Buffett. He is perceived as a sincerely good man who does give them plenty of
operating room and a significant level of trust. Their response is devotion. More than
one CEO has told us that they would walk through fire for their boss.
Despite Mr. Buffett record and strengths, we acknowledge that he turns 83 this year. As
Mr. Buffett himself once said You dont judge the future prospects of a 42-year-old
baseball player by his lifetime stats (Berkshire Hathaways annual report, 1988).
Replacing Him
Mr. Buffett has said that his job will be split into investment and operating functions. Two
investment managers are already in place (Todd Combs and Ted Weschler) and doing
well. On the operating side, the question is open. The most common pick is Mr. Ajit
J ain, who is heavily praised in public by Mr. Buffett; but our impression is that Mr. J ain
may not really want the job. Mr. J ain is very personable, even nice to analysts, but he
does very well at BHRG, operating in the background. He doesnt appear to show the
yearning for the spotlight that seems to be a part of the DNA of many public company
CEOs. Leaders such as Greg Abell (MidAmerican) or Matt Rose (BNSF), however, have
experience at running major public companies and we would guess to be very capable of
taking on the operating responsibilities of running Berkshire.

15
Valuation and Rating
We recommend BRK/A Shares Based on Strengthening U.S.
Consumer and Business
Given that Berkshires companies are generally best of breed and leveraged to the U.S.
economy, we expect that as American businesses and consumers regain strength,
Berkshire will show impressive operating earnings growth.
Core Earnings Power
We expect Berkshires earnings to ramp up quickly and to approach $16bn by 2014 (see
model). In the Underwriting businesses, GEICO should produce double-digit earnings
growth, while unit count growth, driven by a growing economy, should help power
GenRe. BHRG is aggressively entering the Lloyds market. In the non-underwriting
businesses, we expect 11-14% earnings growth. The railways are benefiting from the
U.S. energy boom, economies of scale and the growth in online consumer spending.
The manufacturing, service and retail businesses are also well positioned for growth as
both the American consumer and small businesses spend more. In the Utility and
Energy businesses, we expect steady single-digit growth.
Valuation, Near Historical Norm
No matter how simply the chairman likes to paint the picture, valuation of BRK/A shares
is a challenge. Giving credit to Mr. Buffetts characterization of Mr. Market (as taught by
Benjamin Graham) as a bit irrational in the short term, we find attempting to find a
consistently rational means of valuing the shares which would explain the stocks
movement is a circular maze. Below, we show historical P/E and P/B of the shares. We
would highlight that despite the recent strength in the shares, the valuation is only
approaching the historical mean.

Fig. 11: Historical Price to LTM EPS and Price to Book Value

Source: FactSet, Nomura research
Mr. Buffett has opined on the importance of float in valuing BRK shares, but we demure
for two reasons. First, as we have already argued, operating earnings not investment
returns will be the main driver of value creation in the years ahead. Second, applying his
float thesis to other publicly traded insurers results in buy ratings across the board.
We would highlight that Mr. Buffett has publicly opined on the valuation of BRK/A. Most
notably in recent years, the company initiated its first ever share repurchase program,
essentially setting a floor on the share price of 1.2x book value, with the caveat that cash
on hand would remain at least at the $20bn level. Also, in the 1995 annual report
(published in March of 2006), he said, Let me also put our thoughts about valuation
more baldly: Berkshire is selling at a price at which Charlie and I would not consider
buying it. At the time, BRK was valued at 2.5x book, although we would also note that
the compound annual return on BRK/A since that time has been 8.9%, versus just 5.3%
for the S&P 500.
6.0x
11.0x
16.0x
21.0x
26.0x
Price/LTM EPS Average Minimum Maximum
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
Price to Book Median Minimum Maximum

16
Our Valuation Model Says Buy
In our valuation model, we use the same P/B valuation method that we apply to other
insurers and reinsurers and then a P/E model on the various other businesses. We use
average peer multiples for most of the operating companies, but we have assigned
premium valuations to reflect the strength of the franchises, where warranted. For
Underwriting, we use a blended 1.7x book multiple. Progressive, GEICOs closest public
peer, has a slower growth rate and trades at 2.3x book. Were GEICO to be stand-alone,
we view it could potentially trade at 2.5-2.7x. Reinsurers are trading at 1.0-1.2x book
value, but considering Berkshires advantages, we view a premium in the range of
1.3-1.4x as fair.

We admit the measure is still crude. The equity portfolio sits inside the insurance
business and it doesnt make a lot of sense to give a premium value to a security held at
BRK that an investor can buy on their own. That said, the ROE of the BRKs insurance
businesses excluding those equities would be skew so high as to demand a high
multiple. The opposite holds true for the insurance operations huge cash position.

Fig. 12: Sum-of-the-Parts Valuation
$ in millions
* Book Value estimated by subtracting MSR balance sheet from insurance balance sheet, less deferred taxes. Note that
BRK/A statutory statement includes BNSF, but GAAP does not.
**Deferred taxes of $44.494m, less the approx 1/3 pushed down into our book value calc for Insurance.

The public peers of the non-underwriting businesses are not obvious. For the Utility and
Energy businesses, which includes several major companies, we use a 17x earnings
multiple. Companies such as American Electric Power trades at 16x, Exelon Corp at 15x
and Duke at 17x. BNSF railways (16x) is really only comparable to UNP (17x) in terms
of operating scale and revenues. Berkshires Manufacturing, Service and Retail (17x)
businesses are so diverse and large that a peer is not available, although a candy
company such as Hersheys trades at 25x, a furniture retailer such as Haverty is at 23x,
and Hertz rental cars at 13-14x, DOW Chemical at 14x and the S&P retail index (XTR) is
at 17x.
We have not given any premium valuation for the potential of acquisitions. Mr. Buffett
has pledged to be elephant hunting in looking for major deals, but has been slow to pull
the trigger. As he said in the companys 1992 annual report, Looking for investments is
like looking for a wife: It pays to be active, interested and open-minded, but not to be in a
hurry.
As we show, we currently value the shares at $184,000, representing 15% upside
potential from current levels, which drives our investment rating of Buy.

Book 2013 After-tax P/BV P/E Value
Business Segment Value Earnings Multiple Multiple $ Value Per Share
Insurance* $94,597 1.70x $160,814 $97,882
Utilities & Energy $1,211 17.0x $20,583 $12,528
Railroad $3,840 16.0x $61,435 $37,393
MSR +Lubrizol $4,788 17.0x $81,397 $49,543
FFP Operating Businesses $528 15.0x $7,919 $4,820
Other** ($29,676) ($18,062)
Total $184,104

17

Fig. 13: Berkshire Hathaway Earning Model


$ in millions, except per share
2011 2012 1Q13E 2Q13E 3Q13E 4Q13E 2013E 2014E
Insur ance Gr oup ear ned pr emiums
GEICO 15,363.0 16,740.0 4,377.4 4,503.9 4,621.6 4,743.7 18,246.6 19,523.9
General Re 5,816.0 5,870.0 1,500.4 1,440.5 1,444.8 1,543.8 5,929.5 5,901.7
BHRG 9,147.0 9,672.0 1,657.4 2,120.0 2,138.3 2,410.9 8,326.5 8,666.1
BHPG 1,749.0 2,263.0 583.1 616.4 676.2 726.8 2,602.5 2,992.8
Total ear ned pr emium 32,075.0 34,545.0 8,118.3 8,680.7 8,880.9 9,425.2 35,105.0 37,084.4
Total Loss, LAE & underwriting expenses 31,827.0 32,920.0 7,606.7 8,131.0 8,283.6 8,813.2 32,834.5 34,426.6
Combi ned Rat i os
GEICO 96.3% 95.9% 92.0% 92.0% 91.0% 91.0% 91.5% 91.0%
General Re 97.5% 93.6% 95.3% 95.4% 95.3% 95.4% 95.3% 94.8%
BHRG 107.8% 96.9% 98.6% 97.6% 98.3% 98.8% 98.3% 97.5%
BHPG 86.2% 87.4% 88.0% 88.0% 88.0% 88.0% 88.0% 87.0%
Total Insur ance Gr oup 99.2% 95.3% 93.7% 93.7% 93.3% 93.5% 93.5% 92.8%
Consolidated Revenue 143,688.0 162,463.0 40,518.8 42,800.5 43,862.2 45,187.6 172,369.0 186,839.8
Consolidated Ear nings BTaxMI 15,301.0 22,236.0 5,053.3 5,349.0 5,676.1 5,636.3 21,714.8 23,905.4
NET INCOME 10,241.0 14,824.0 3,361.8 3,565.8 3,791.5 3,764.1 14,483.2 15,994.7
10,254.0
Realized gains (losses) after tax (521.0) 2,227.0 130.0 0.0 0.0 0.0 130.0 0.0
OPERATING INCOME 10,762.0 12,597.0 3,231.8 3,565.8 3,791.5 3,764.1 14,353.2 15,994.7
Weighted Avg. Shares (actual) 1,649,891 1,651,294 1,650,537 1,650,537 1,650,537 1,650,537 1,650,537 1,650,537
Class A shares outstanding (actual) 938,244 904,528 904,528 904,528 904,528 904,528 904,528 904,528
Class B shares outstanding (actual) 1,068,843,376 1,123,393,956 1,123,393,956 1,123,393,956 1,123,393,956 1,123,393,956 1,123,393,956 1,123,393,956
Blended shares outstanding (calculated) 1,650,806 1,642,945 1,642,945 1,642,945 1,642,945 1,642,945 1,642,945 1,642,945
Per Share:
Net Income $6,207.08 $8,977.20 $2,036.79 $2,160.40 $2,297.12 $2,280.52 $8,774.83 $9,690.60
Realized gains (losses) on investments/derivatives ($315.78) $1,348.64 $78.76 $0.00 $0.00 $0.00 $78.76 $0.00
Oper ating Income $6,522.86 $7,628.56 $1,958.03 $2,160.40 $2,297.12 $2,280.52 $8,696.07 $9,690.60
% Change -3.6% 17.0% 14.0% 11.4%
Book Value Per Shar e $99,860.31 $114,214 $116,260 $118,430 $120,738 $123,029 $123,029 $132,765
% Change 4.6% 14.4% 7.7% 7.9%
ROE 6.7% 7.1% 7.3% 7.6%
Consolidated Balance Sheet
Total Asset s 392,647.0 427,452.0 436,518.9 446,373.6 456,556.5 467,105.4 467,105.4 509,567.6
Total Liabilities 223,686.0 235,864.0 241,569.1 247,857.9 254,249.4 261,034.2 261,034.2 287,501.8
Berkshire Hathaway Shareholders' Equity 164,850.0 187,647.0 191,008.8 194,574.6 198,366.1 202,130.2 202,130.2 218,124.9
Total Shar eholder s' Equity 168,961.0 191,588.0 194,949.8 198,515.6 202,307.1 206,071.2 206,071.2 222,065.9

18
Appendix A-1
Analyst Certification
I, Clifford Gallant, hereby certify (1) that the views expressed in this Research report accurately reflect my personal views about
any or all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation was, is or will be
directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of my
compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc.,
Nomura International plc or any other Nomura Group company.

Issuer Specific Regulatory Disclosures

The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries, and may refer to one or more
Nomura Group companies.
Materially mentioned issuers

Issuer Ticker Price Price date Stock rating Sector rating Disclosures
Berkshire Hathaway Inc. BRK/A US
USD
160,618.00 26-Apr-2013 Buy Not rated A1,A2,B30

A1 Nomura Securities International, Inc has received compensation for non-investment banking products or services from the issuer in the
past 12 months.
A2 Nomura Securities International, Inc had a non-investment banking securities related services client relationship with the issuer during the
past 12 months.
B30 Clifford Gallant has a long position in Berkshire Hathaway Inc. (BRK-B). Firm policy prohibits him from trading in these shares while he
maintains coverage of the company or any of its affilitates.

Berkshire Hathaway Inc. (BRK/A US) USD 160,618.00 (26-Apr-2013) Buy (Sector rating: Not rated)
Chart Not Available
Valuation Methodology Our price target of $184,000 for Berkshire Hathaway A shares is based a sum-of-parts calculation that
includes all the major business segments of the company. The benchmark for this stock is the S&P 500 index.

Risks that may impede the achievement of the target price Risks to Berkshire Hathaway reaching our price target include
changes in the insurance pricing cycle, large natural catastrophes, changes in underlying loss trends, fluctuations in interest
rates as well as economic conditions in the United States and abroad.


19
Important Disclosures
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Distribution of ratings (Global)
The distribution of all ratings published by Nomura Global Equity Research is as follows:
43% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 40% of companies with this
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11% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 23% of companies with
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As at 31 March 2013. *The Nomura Group as defined in the Disclaimer section at the end of this report.

Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America
The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock.
Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited management
discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate
valuation methodology such as discounted cash flow or multiple analysis, etc.

STOCKS
A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral',
indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that
the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target
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Benchmarks are as follows: United States/Europe: please see valuation methodologies for explanations of relevant benchmarks for stocks,
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Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology.

SECTORS
A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance,
indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that
the analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500;
Europe: Dow J ones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.

Explanation of Nomura's equity research rating system in Japan and Asia ex-Japan
STOCKS
Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price,
subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock,
based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that
potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A
'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price
have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is
acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled
as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should
not expect continuing or additional information from Nomura relating to such securities and/or companies.

SECTORS
A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive
absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks
under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average
recommendation of the stocks under coverage is) a negative absolute recommendation.


20
Target Price
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impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the
company's earnings differ from estimates.

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Initiating Coverage of BRK/A with a Buy
Equity Research
Great Years Ahead for Berkshire Hathaway
Initiating Coverage of BRK/A with a Buy
Cliff Gallant, CFA NSI
+1 415 445 3865
Clifford.gallant@nomura.com
Matt Rohrmann, CAIA NSI
certification, important disclosures,
and the status of non-U.S. analysts.
April 30, 2013
,
+1 212 298 4234
matthew.rohrmann@nomura.com
Great Years AheadInitiating with a Buy Rating
Double-Digit Earnings Growth
R d h d (2013E EPS f $8 696 07 t 14 0% th Y Y 2014E EPS th f 11 4%)
Berkshires Intrinsic Value Will Be Driven by Operating Earnings, Not Investing Acumen
Record years ahead (2013E EPS of $8,696.07 represents 14.0% growth YoY; 2014E EPS growth of 11.4%)
Equates to 7.6% ROE in 2014E assuming there is not additional capital deployment
We Expect GEICO, BNSF and MSR all to report record income (nearly 3/4
th
of total revenue)
Leveraged to U.S. economy (85% of revenues driven by U.S. operations; we assume ~3% GDP growth in U.S.)
Buffetts Investing Acumen Is Just a Bonus
$35 billion of cash after Heinz (10% return on $15 billion adds ~70 bps to book value)
A privileged perch (competitive advantage via scale allows for high-profile and lucrative deals, i.e., GS, BofA, Heinz)
1.2x price-to-book floor (management buyback valuation target less than 15% below current market price)
Stock Is Cheap
$184,000 sum-of-the-parts valuation, approximately 15% potential upside (does not include any further capital deployment)
V l ti fl t B ff tt (W i 83 ld) Valuation reflects Buffett concerns (Warren is 83 years old)
Ignores operating fundamentals (industry valuation multiples used for industry-leading companies)
1
What Is Berkshire Hathaway?
Business Mix by 2012 Total Revenue
Other Manufacturing,
16.5%
Other,
5.0%
Retail, 2.3%
Financial Products,
2.5%
McLane Company,
23.0%
GEICO, 10.3%
General Re, 3.6% Insurance Group, 24.0%
Burlington
Northern
BHRG, 6.0%
BHPG, 1.4%
Ins. Inv. Inc., 2.8%
Santa Fe, 12.8%
Utilities & Energy
(MidAmerican), 7.2%
Marmon, 4.4%
2
What Is Berkshire Hathaway?
Warren Buffett took over Berkshire Hathaway in 1965 and has grown book value at a CAGR of 19.7% through YE2012
Overall gain 586 817%over same time frame
The Berkshire Empire Is an American Empire
Overall gain 586,817% over same time frame
Despite controlling roughly $428 billion of assets, Berkshires disclosure is limited (10-Qs only average about 25 pages in length)
Buffett & Munger focus on long-term returns in their quarterly commentary, as do most of BRK/As largest shareholders
At least 85% of total revenues can be sourced back to the United States
If America does well, Berkshire should do great
Correlation of ~0.80 to U.S. GDP; assume ~3% GDP growth
BRK A ROE U S GDP
2.0%
2.5%
3.0%
3.5%
7.0%
7.5%
8.0%
BRK.A ROE U.S. GDP
Top 10 Holders Shares Owned Shares Out %
Warren E. Buf f ett 350,000 39.2
Fidelity Management & Research Co. 29,676 3.3
David Sanf ord Gottesman 19,538 2.2
First Manhattan Co. 18,478 2.1
Capital World Investors 12,387 1.4
0.0%
0.5%
1.0%
1.5%
6.0%
6.5%
7.0%
2010 2011 2012 2013E 2014E
Davis Selected Advisers LP 10,921 1.2
Ruane Cunnif f & Goldf arb Inc. 10,845 1.2
Norges Bank Investment Management 6,233 0.7
Charles T. Munger 6,224 0.7
Gardner Russo & Gardner 4,833 0.5
Top 10 Totals 3,619,135 52.6
3
Source: Company data, BEA, Nomura research
2010 2011 2012 2013E 2014E
Underwriting (24% of 2012 Total Revenue)
#3 ranked U.S. auto insurer, ranked by total premiums
#1 direct writer, only pure-play national
GEICO (10.3% of 2012 total revenue, excluding investment income)
, y p p y
Unique cost advantage that can be leveraged to save the customer 15% or more
Threat of Progressive and telematics (~50% of Progressives business done on a direct basis)
Rank Company 2012 2011 2010
1 State Farm Mutl Automobile Ins 18.39 18.61 18.65
2 Allstate Corp. 10.01 10.31 10.67
3 Berkshire Hathaway Inc. (GEICO) 9.59 9.07 8.50
Market Share (%)
4 Progressive Corp. 8.27 7.93 7.70
5 Farmers Insurance Group of Cos. 5.89 5.89 5.96
6 USAA Insurance Group 4.84 4.60 4.36
7 Liberty Mutual 4.73 4.54 4.49
8 Nationwide Mutual Group 4.09 4.13 4.29
9 Travelers Companies Inc. 1.94 2.08 2.10
10 American Family Mutual 1.89 1.96 2.10
4
Source: Company data, SNL, Nomura research
Expect high-single-digit growth and strong underwriting profits with combined ratios near 90%
Growth driven by strong advertising of savings potential to the customer as well as strong customer service
GEICO (10.3% of 2012 total revenue, excluding investment income)
y g g g p g
Profitability driven by modestly improving loss trends and strong underwriting acumen
100 0% $25 000
GEICO NWP($mm) GEICO CR (%)
90.0%
95.0%
100.0%
$20,000
$25,000
80.0%
85.0%
$10,000
$15,000
70.0%
75.0%
$0
$5,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E
5
Source: Company data, SNL, Nomura research
Berkshire Hathaway Reinsurance Group (BHRG)/General Re
BHRG only major organically grown business at Berkshire
Reinsurance (11% of 2012 total revenue including BHPG, excluding investment income)
BHRG only major organically grown business at Berkshire
Combined to be worlds #3 reinsurer
Historically, large one-off special situation transactions
The worlds best mattress
Financial strength and reputation are competitive advantages
BHRG recent moves indicate new strategy?
6
Berkshire Hathaway Reinsurance Group (BHRG)/General Re
Volatile business but expecting combined ratios in 95 98%range low single digit growth
Reinsurance (11% of 2012 total revenue including BHPG, excluding investment income)
Volatile business, but expecting combined ratios in 95-98% range, low-single-digit growth
Profitability driven by more normal catastrophe experience
Growth driven by improving economy and potential for larger international deals
GenRe NWP($mm) GenRe CR (%)
105.0%
110.0%
$6,000
$7,000
$8,000
90 0%
95.0%
100.0%
$3,000
$4,000
$5,000
80.0%
85.0%
90.0%
$0
$1,000
$2,000
7
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E
Key jargon among Buffett fan base, $75 billion at 12/31/12
Float and the Unfair Advantage
Hard to argue with managements track record since 1965
Underwriting liabilities as long-dated assets
Much more aggressive investment style than any other public insurer/reinsurer
We expect less importance p p
Past transactions include Bank of America, Goldman Sachs, GE Capital
Heinz: $4 billion for 50% equity; $8 billion of preferreds pay 9% and 5% additional in warrants
Largest current holdings include: Coca-Cola, IBM, Wells Fargo and American Express
Nothing modeled for $35 billion of post Heinz cash holdings Nothing modeled for $35 billion of post-Heinz cash holdings
Buffett has pledged to hold $20 billion of cash as a cushion, leaving $15 billion to elephant hunt
A 10% return on $15 billion of excess capital adds ~70 bps to book value
8
Non-Underwriting Businesses (76% of 2012 Total Revenue)
Burlington Northern Santa Fe
32 500 miles of routes in U S /Canada 400 different lines
Railways and Utilities & Energy (Rail:12.8% & Energy 7.2% of 2012 Total Revenue)
32,500 miles of routes in U.S./Canada. 400 different lines
Industry experiencing strong growth
Expecting 8-9% revenue growth and over $4 billion of 2014 pretax earnings
Union Pacific only peer, limited competition
MidAmerican
Several major energy and utility companies including Pacific Corp, Northern Power Grid and several natural gas pipelines
Often regulated, limited competition O e egu a ed, ed co pe o
Expecting steady mid-single-digit growth of revenues and earnings
9
Non-Underwriting Businesses (76% of 2012 Total Revenue)
The broad all other category with an eclectic mix of companies
Many have dominant market shares or well known brands within their industries
Manufacturing, Service and Retail (51.2% of 2012 Total Revenue)
Many have dominant market shares or well known brands within their industries
Includes:
Marmon (itself includes 150 manufacturing and service companies including Union Tank Car)
McLane (Wal-Marts largest wholesale distributor)
Nebraska Furniture mart (Americas largest home furnishing store)
Acme Building, Benjamin Moore, Johns Mansville, MiTek, Shaw Industries, Lubrizol, Businesswire, TTI, Dairy Queen, Buffalo News,
Borsheims, Helzberg Jewelers, Pampered Chef, plus many more
Good example of where the details are lost on many of these businesses due to opaque disclosure
We expect low-digit revenue growth and over $8 billion of pretax earnings by 2014, driven improving U.S. economy & M&A opportunities
10
Whats It Worth?
Core Earnings and Sum-of-the-Parts Valuation
Earnings estimates are $8,696.07 for 2013E and $9,690.60 for 2014E
Equates to 7 6% ROE in 2014E assuming there is now additional capital deployment
2 0x
2.5x
Price to Book Median Minimum Maximum
Equates to 7.6% ROE in 2014E, assuming there is now additional capital deployment
Stock currently trades at 1.4x current book value and just 1.3x 2013E book value, below historical average
0.5x
1.0x
1.5x
2.0x
0.0x
0.5x
Book 2013 After-tax P/BV P/E Value
Business Segment Value Earnings Multiple Multiple $ Value Per Share
Insurance* $94,597 1.70x $160,814 $97,882
Utilities & Energy $1,211 17.0x $20,583 $12,528
Railroad $3,840 16.0x $61,435 $37,393
MSR + Lubrizol $4,788 17.0x $81,397 $49,543
FFP Operating Businesses $528 15.0x $7,919 $4,820
11
*Book value estimated by subtracting MSR balance sheet from insurance balance sheet, less deferred taxes. Note that Berkshire Hathaway statutory statement includes BNSF, but GAAP does not.
**Deferred taxes of $44.494m, less the approx 1/3 pushed down into our book value calc for Insurance.
Other** ($29,676) ($18,062)
Total $184,104
Risks
Weak U.S. Economy
Poor Levels of Disclosure
No Centralized Risk Management
Blow Up at One Business Ruins the Total
Buffett Wont Be Around Forever
12
Appendix A-1
Analyst Certification
I, Clifford Gallant, hereby certify (1) that the views expressed in this Research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in
this Research report, (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no
part of my compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group
company.
Issuer Specific Regulatory Disclosures
The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries, and may refer to one or more Nomura Group companies.
Materially mentioned issuers
Issuer Ticker Price Price date Stock rating Sector rating Disclosures Issuer Ticker Price Price date Stock rating Sector rating Disclosures
Berkshire Hathaway Inc. BRK/A US USD 160,618.00 26-Apr-2013 Buy Not rated A1,A2,B30
A1 Nomura Securities International, Inc has received compensation for non-investment banking products or services from the issuer in the past 12 months.
A2 Nomura Securities International, Inc had a non-investment banking securities related services client relationship with the issuer during the past 12 months.
B30 Clifford Gallant has a long position in Berkshire Hathaway Inc. (BRK-B). Firm policy prohibits him from trading in these shares while he maintains coverage of the
company or any of its affiliates.
Berkshire Hathaway Inc. (BRK/A US) USD 160,618.00 (26-Apr-2013) Buy (Sector rating: Not rated)
Chart Not Available
Valuation Methodology Our price target of $184,000 for Berkshire Hathaway A shares is based a sum-of-parts calculation that includes all the major business segments of the company.
The benchmark for this stock is the S&P 500 index.
Risks that may impede the achievement of the target price Risks to Berkshire Hathaway reaching our price target include changes in the insurance pricing cycle, large natural
catastrophes, changes in underlying loss trends, fluctuations in interest rates as well as economic conditions in the United States and abroad.
13
Appendix A-1 Contd
Important Disclosures
Online availability of research and conflict-of-interest disclosures
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The distribution of all ratings published by Nomura Global Equity Research is as follows:
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of the Nomura Group*.
As at 31 March 2013. *The Nomura Group as defined in the Disclaimer section at the end of this report.
14
Appendix A-1 Contd
Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America
The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to
target price defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current
intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc.
STOCKS
A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to
perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A
rating of 'Suspended', indicates that the rating, target price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies in certain
circumstances including, but not limited to, when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. Benchmarks are as follows: United
States/Europe: please see valuation methodologies for explanations of relevant benchmarks for stocks, which can be accessed at:
http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise
stated in the valuation methodology.
SECTORS
A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector
to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12
months. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.
Explanation of Nomura's equity research rating system in Japan and Asia ex-Japan
STOCKS STOCKS
Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price, subject to limited management discretion.
In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple
analysis, etc. A 'Buy' recommendation indicates that potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less
than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price have been suspended
temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction
involving the subject company. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in
the top banner Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies.
SECTORS
A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral'
rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means
most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.
15
Appendix A-1 Contd
Target Price
A Target Price, if discussed, reflects in part the analyst's estimates for the company's earnings. The achievement of any target price may be impeded by general market and macroeconomic trends, and by
other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.
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Appendix A-1 Contd
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Appendix A-1 Contd
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Key company data: See page 2 for company data and detailed price/index chart.

Berkshire Hathaway Inc. BRKa.N BRK/A US .

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