giofranchi

Richard, I have already told you, but I will repeat it again: if that’s the reason the rights offerings were done the last two years, then business results will be deteriorating in the future. And that will change my mind on the BH investment. Not what you, nor anyone else, say… You say you have not read a single BH filing since 2010… Yet, you write so confidently about BH… Let me ask you a question: have you some thoughts on BH business results in those 4 years from 2011 to 2014? If the answer is yes, do you judge them to be poor, average, good, or EXTREMELY GOOD? (Don’t mean to influence your choice! ;D) Gio

Has Franchising Really Caused The Drop In Biglari Holdings Earnings As Groveland Contends? Gio biglari-is-groveland-correct-about-franchising.pdf

I like your analogy! ;) My perspective is the following: a cheating girl must have consequences, right? The relationship with her at some point must become unbearable, right? Because otherwise, if the relationship keeps being stable and fulfilling… WHO REALLY CARES?! The same is true with Biglari imo: as long as business results justify what I give away as a shareholder, that’s fine with me. But, should business results deteriorate, I am gone! Of course, the great thing about a low stock price is that probably, even with deteriorating business results, it won’t go much lower than this! Cheers, Gio

Gio

Maybe :) Well, what I mean is that it just boils down to a business judgment: if those businesses can increase NAV per share at a CAGR of 15% for many years, and they always sell at NAV per share (or below), then it automatically follows that their owners will make a disproportionate amount of money. The role of valuation in investing in this case ceases to be meaningful… Gio

Richard, this is not serious, is it?! You must know that a rights offering is a way to raise capital. You raise capital only when you know how to use it productively, otherwise your returns on it would be disappointing, and shareholders will suffer (Biglari being a shareholder suffers too) (like I have often said, should results start to disappoint, I will change my mind on the BH investment). What I am saying is that among all the various ways capital could be raised a rights offering is by far the best and the most advantageous to shareholders who are not sleeping at the wheel! ;) Gio

Not at any price. It's being reduced at 1.3x current book and 12.5x 2016 eps which is cheap if it can make 15-20% roe's as the poster above implies, but not otherwise, and he's keeping a holding for that time. No-one (sensible) makes long term investments regardless of a) the size they grow to and b) valuation - least of all Prem who is very value-oriented, and especially not in highly levered businesses when your macro outlook is gloomy. Pete, very well said! :) Cheers, Gio

Just bought it! ;) Gio

And that’s exactly what Biglari always does while discussing results in his AL. :) Gio

5 businesses in 5 years which become a 3x investments in 2 to 3 years won’t justify a 2xNAV price?! Sincerely… I have not done the math! Therefore, I trust what you say, and I hope this ends a discussion I guess no one really cares about! ;) Cheers, Gio

Except that I had the chance to buy below BVPS after all the new shares issued were accounted for. Would you define having the cash at the right time to take advantage of the right opportunity a “free lunch”?!... I don’t! There were two rights offerings, the first in 2013, the second in 2014... Also the timing of the first rights offering is "suspect"? Well, we will see! ;) Cheers, Gio

Why?!… Through the rights offering I have been able to buy shares well below BVPS after all the rights were exercised twice now. Why not??!!… Which shareholder wouldn’t love that?! BH is not yet a billion dollar company (lots of room to grow!). Biglari is my age. He is a wonderful investor and operator. At least so far. Despite the fact people on this board don’t like him, if he keeps business results at the level of the last 5 years, he will certainly accomplish great things in the future. If, on the other hand, business results deteriorate (for whatever reason), I will change my mind. Stock price alone is not able to change it. ;) Cheers, Gio

Stock return of course! The incentive, instead, is calculated based on the BVPS increase, without taking into consideration the effect of the rights offering. Effect that, truth be told, would have been slightly negative for Biglari’s incentive compensation… Because new shares have been sold below BVPS. ;) Gio

And it is also the same reason why investors in PSH (and FIH) will make a disproportionate amount of money! :) (imo!) Gio

No. I repeat what I have said: if FIH can find one investment like IKYA each year for the next 5 years… than 2xNAV could probably turn out to be a good investment. FFH bought IKYA for 10x fcf while IKYA increased net earnings more than 200% YoY for the next two years... IKYA's net earnings in 2014 have been 3 times its 2013 net earnings! And revenues have doubled last year! Gio

No: the effect of a rights offering is not taken into consideration while computing the BVPS appreciation for the incentive agreement. Gio

Thank you very much for posting this! :) Cheers, Gio

Usually I like neither faith/optimism nor skepticism. If I am wrong about the business, I am ready to make no money or to lose some. But, if I am right, I think I deserve to make some. That, of course, is not the way I think about the business. Of course I don’t know either… But Thomas Cook and IKYA are two wonderful examples, and as I have said, you just need a few more choices like those two to build lots of value. The demographics are there, a new pro-business government is there, India’s overall debt level is quite low: those are three wonderful tailwinds for business! The stock market is ebullient right now? Well, we have lots of cash, don’t we? And will be ready to use it when opportunities come. Imo they will. Then, again, if I am wrong and great opportunities won’t come FIH’s way, I am ready to accept the consequences. Gio

Of course, you are right! :) Gio

Greg, from 2000 to 2008 the CAGR has been 13.6%, than from 2009 to 2014 BH's average return from stock market investments has been 32.8% annual (instead of 17% for the S&P500). In 2015 CBRL stock price has already appreciated a lot... Probably, I am not understanding what you mean... Gio

Pete, this is my idea of a fair price today: the value I will own 20 years from now discounted to the present with a sensible rate. If I am right about the business opportunities, NAV might grow at a CAGR higher than 12%, and a discount rate in between 9% and 10% seems sensible to me. Cheers, Gio

In theory... But, when they bought into Thomas Cook, I didn’t follow… When they bought into IKYA, I didn’t follow either… Who was smart enough to do so? Recognizing how mispriced their prospects for growth were? Gio

Greg, are we talking about the same topic? I am talking about investment returns. Are you? I just find to be very rare a CAGR of 13.6% in those 9 years during which we witnessed the S&P500 cut in half twice... That's why I am asking if someone knows a stock market manager who has managed to do better! ;) Gio

Of course it might come down to NAV, and it probably will (great opportunity to buy more!). But that doesn’t mean I agree FIH is a hyped investment right now. Gio

Yeah thats fine, after some years of operating and buying private businesses it might trade at a premium to NAV because NAV doesn`t reflect the reality anymore. But not in the first years of operating and surely not before they bought the first business. The fact NAV reflects reality is a generalization… Instead, imo, it depends on how efficiently priced the growth FIH is going to buy in the near future might actually be. Of course, my best guess is it will be very inefficiently priced! (Like it has been for Thomas Cook and IKYA) Gio