Throughout this article, we are going to take a look at a group of UK companies backed by billionaire Warren Buffett.
Warren Buffett is a legendary investor in the United States of America, and he is currently worth over $50 billion. He’s recently been giving a great deal of his fortune to charity, so he’d be worth even more than where he currently stands. It’s not often that Mister Buffett invests in businesses outside of the US, but he and Berkshire Hathaway will do it on occasion.
Like I already mentioned, Berkshire does have a few solid investments in the UK. It certainly can’t hurt to take a look at the Oracle of Omaha’s investment strategies in this country. We might learn a thing or two. So what companies convinced Warren Buffett to step out of the United States comfort zone?
The biggest investment for Berkshire Hathaway in the United Kingdom is the top supermarket in Britain named Tesco. This is an investment that they have been building over quite a few years now.
Berkshire first opened its position in Tesco during 2006. Sir Terry Leahy was the CEO at the time the position was opened, and Tesco was a major player in the UK supermarket game. They even had plans to expand on a global scale. Buffett really appreciates the quality of the managers in every investment that he makes, and Sir Terry Leahy definitely fits the bill. Warren Buffett also likes to invest in dominant players in their market, and that also attracted him to Tesco since they were the top dog in the UK with plans on international expansion. That will drive growth in the company for many years to come.
Sir Terry announced that he was going to retire in 2010, and he named Philip Clark as his successor. Berkshire Hathaway purchased more shares at the time of Clark’s succession. Clark was a veteran at Tesco for many years, and he was also the chief of international operations for the company prior to being named the CEO. It’s quite obvious that Warren Buffett was satisfied with the change in management, and even looked at it as an opportunity to further expand his investment in the company. I’m sure he also appreciates the experience that Clark brings to the table, as well as his skill in navigating the international markets which are a big part of their expansion strategy.
Berkshire Hathaway most recently purchase shares of Tesco in January of 2012. Oddly enough, they purchased when Tesco provided their first profit warning in over 20 years. But that didn’t deter Berkshire Hathaway whatsoever, and they increased their stake in the company from 3.2% to 5.1%. They have 408 million shares of the company, and it is valued at the time of this writing at 1.3 billion pounds. Warren Buffett took his own advice when he made his most recent purchase, and chose to be “greedy when others are fearful.”
As I’m sure you already know, Warren Buffett invests for the long-term, so we won’t know whether or not his recent addition of shares will be a great triumph or a dud. If you decide that you want to follow the advice of Warren Buffett and invest in Tesco, you’ll pay 9.5 times the forecasted earnings for this year, and the current share price is 313p. Also, the expected forward dividend yield is 4.6%.
Berkshire Hathaway and Warren Buffett also have a smaller investment in the number two supermarket in the UK, Asda. But this investment comes in the form of shares in Asda’s owner: Walmart, the US retail giant. The 541 stores that Asda owns is roughly 5% of the global estate of Walmart.
Berkshire Hathaway also owns shares in the UK public company GlaxoSmithKline. They are the biggest Pharma group in Britain, and the fifth largest pharmaceutical company in the world.
Berkshire Hathaway is invested in GSK via 1.5 million ADRs (American Depositary Receipts) which they took on in early 2008. The current value of this holding is $69.5 million, or 43,000,000 pounds.
This situation is basically another area where Warren Buffett decided to be greedy while other people were afraid. Berkshire had a lot more faith in GSK then the rest of the market. Most were worried about the competition, regulatory clampdown and generic drugs in the United States. GSK has actually increased their earnings-per-share by a compound annual growth rate of 4%, and its dividend has also increased by CAGR of 7%.
The share price of GSK is currently trading at 12.5 times the forecasted earnings for this year, which is roughly 1430 pounds. The dividend yield forecast is over 5%.
Big Pharma and supermarkets are traditionally known as stable investments, and part of the defensive sectors. This means that these companies are expected to perform relatively well during any economic condition, even a negative one. This also holds true for Berkshire Hathaway’s stake in a different type of UK company.
It’s not currently listed on the stock market, but it is owned by a private holding company in the US known as MidAmerican Energy. Berkshire currently owns a 9.5% of MidAmerican, and they have a large variety of utility companies. But the one we’re specifically talking about is Yorkshire Electricity and Northern Electric. This is the third largest distributor of electricity in the UK, and it makes around 25% of the total profit for MidAmerican.
There’s no real way for you to personally invest in Yorkshire Electricity and Northern Electric directly, but you can technically buy shares of Berkshire Hathaway since that stock price is certainly affected by this particular business.
These are the main UK investments that Warren Buffett and Berkshire Hathaway has made over the last few years. I recommend you study these investments and try and determine why Warren Buffett may have chose these companies. We provide you with a few reasons already, but you never know what else you might dig up on your own.