To The Moon

Let me introduce you to a new company today. This company's Operation is 100% like $Berkshire Hathaway(BRK.B)$, and ill be doing an analysis on this company called Markel.

$Markel(MKL)$ Operates in 3 Segments- Insurance, Investment and Markel Ventures. 

They Operate a Specialty P&C Insurance. Just like Berkshire they invest their Float into equities and common stocks instead of T-Bill and Corporate Bonds like what Traditional Insurance companies do. As of 2021, they have about 8.5B in common stocks. Due to their insurance segment being a cash cow, they reinvest their cash by buying wholly private company and parking it under their Markel Ventures segment. They currently own many highly profitable private businesses like Costa Farms and Buckner Heavy Lift Cranes. under their Markel Ventures Segment.

Key Takeaways from their Financials:

●Markel Ventures have a Market Cap of 20.5B, and Operating Income of 3.13B in Fiscal year 2021. This gives them a PE Ratio of 6.5!!

●Underwriting Profit contributed 628M in 2021, while investment income and Markel Ventures contributed 375M and 175M Respectively. 

●Markel has a free cash flow of 2.13B in 2021. This gives it a Price to Free Cash Flow of 9.6!

●Free cash flow has grown from 571M in 2014 to 2.13B in 2021. That is a CAGR of 21%! Conveniently beating the S&P500 by a huge Margin.

●Markel has 4.88B in cash and 4.33B in Long Term debt. Financial Health of Markel is extremely healthy. 

●Outstanding share count has reduced by CAGR of 0.2% from 13.98M in 2014 to 13.77M in 2021  

●Combined Ratio has been below 100% for the past 5 years. 5 year average combined ratio is 96%. Which means they get to invest their float at 0 cost, on top of that get a 0.4% underwriting profit. 

Lets look at Valuation:

I calculate Markel's Intrinsic value similar to Berkshire.

Market Cap: 20.5B

Stocks: 8.6 B

Cash: 4.88 B

Net Market Cap: 7.02B

FCF: 2.13B

Based on a conservative 6% growth rate for the next 10 years, discounted with a discount rate of 15%, youll get the present value of 24.21B. (see calcalculation in picture)

When you add back the stocks and cash into the present value of the FCF, youll get the intrinsic value of 37.85B. Compared to its current market cap of 20.5B, its currently trading at a 46% discount to its intrinsic value. 

The reason why its trading at a very undervalued level its most likely due to its high share price which makes it hard for retail investors to invest. 

Given the high quality management and high quality Free Cash Flow this company is generating, I think its worth to put it in your portfolio. Compared to Berkshire which is currently at 800B of Market Cap, Markel has way more room to grow and could easily be a 10x bagger in your portfolio.

What do you think of this next berkshire hathaway? Would you invest in it? 

Let me know in the comments!