BH - Biglari Holdings

[Liberty]

Issues related to management, business strategy, brands/moats, etc, are directly related to value. Value isn't just the numbers on the page, it's also a lot of qualitative stuff. A cable company doesn't have the same value if its run by John Malone than if it's run by some random MBA.

 

I agree, but what I believe NBL is trying to point out is that you have to judge how relevant all parts of the thesis are for the final valuation. In case of Lululemon or Green Mountain Coffee Roast you have to be quite sure about qualitative issues because they are pretty much the defining feature of the market price (i.e. if Lululemon had no competitive edge it would trade 75% lower). But when you can buy BH at the price of cash + CBRL stake basically the only important question that you have to ask is: is CBRL fairly valued? Everything else is worth at least something and whether that is $100m or $300m is 'only' the difference between 40% upside and 60% upside (just jotting down some random numbers).

 

I think that's a refreshing way to look at BH. And I agree that in general in this topic we are too concerned about the menu that SNS is serving, the jet Biglari is flying, the happiness of franchisees, etc. (I plead guilty too). Stuff that is extremely hard to judge and will influence your price target by +-5% at most. Yet what is the last time somebody tried to peg a price on CBRL? The last update in the CBRL topic was posted almost two years ago.

 

I don't disagree. Just saying that discussing that stuff is discussing value. And since it's qualitative, it'll have more or less weight in different people's valuations. Some people might not mind too much some unsavory aspects, or even the appearance of them, while others wouldn't touch them with a ten foot pole. The former can't tell the latter that their approach is the 'right' one or vice versa. People also buy for different reasons: It can matter a lot whether you intend to buy something undervalued to sell it when it reverts to the mean, or if you intend to hold it for a decade+ as a "partner" in the business.

[mateo999]

I actually think valuing SNS is a key to this investment working out.  Because cash and CBRL shares are not likely to be distributed to BH shareholders any time soon, I don't think I'm comfortable considering them fungible.  As for the tax liability, I took today's value of the CBRL stake and subtracted the $241mm cost basis SB mentioned in this year's letter, and taxed it at 15%.  Maybe that's a lazy/incorrect way of doing the math, so please let me know if that's off base.

[Jurgis]

What is the last time somebody tried to peg a price on CBRL?

 

I looked at it and I think it is overvalued. I don't assign specific intrinsic value to it though. If I was looking to invest into CBRL, I would look for at least 30% lower from here, but that might be crossing both overvalued and fairly large "fairly valued" area.

 

Note that CBRL has been a value trap for decades until Mr. Big came. The current attractiveness might be just management trying to look good. We can get a variety scenarios for the future that don't work out well for BH. For example, people assume that "if CBRL stock drops a lot, BH gets elected into BoD and fixes things or takes over the whole co.". This is not given.

 

[mateo999]

To those who think CBRL is some shade of overvalued, do your valuations take into account potential boosts to traffic given low fuel prices?  The stock price might already be taking this into account, I don't know.  A number of other companies that simplistically should do OK in a low fuel price environment (Couche-Tard, Casey's General, TravelCenters, Core-Mark, DineEquity, Denny's) all seem to have benefited from the recent oil plunge.

[randomep]

 

I just started looking at BH last weekend. And I have a question that I hope you guys can answer. If the boss wants to invest in a business, how will he do it? Through buying it as a wholly owned BH subsidiary or through investing in the lion funds and buy it through the funds?

 

thanks

 

Buying whole businesses is directly through BH parent. Buying marketable securities is through the Lion fund.

He bought Maxim magazine and First guard insurance this year. I think these two as well as Steak n Shake franchisee platform are sufficient investing platforms for him for the next few years. He will plow earnings into these platforms and grow from there.

 

Muscleman, is this your general impression or is this something in the articles of incorporation?

 

I want to know is the decision at his discretion with the only constraint on his actions is his fiduciary duty to the BH sharedholders?

 

BTW, you have quite a bit invested in BH huh? certainly gives me a bit more confidence

 

If you gain more confidence merely because I have a good sized position, that is called confirmation bias. This kind of mentality will hurt you. You should read "The little book of behavior investing" and be careful of these mind traps. :)

Whether I have a big or small position has no impact on whether BH is a good investment at this price and Whether Biglari can be trusted.

 

Well, true, but I was mostly joking on that point. In any case it is moot, after pondering this week I decided to pass on BH, good luck all!

 

ps. I will get in if it goes cheaper though....

[mateo999]

Hi Mateo - nothing lazy about that method, that is exactly how I do it.  I think the relevant tax rate is 35% (corporate tax rate) instead of 15% (capital gains tax rate for some individuals in the U.S. is 15% but not C-corps, who have to pay ordinary corporate income tax on capital gains).  Thus, ($610 million - $241 million) * .35.  So a little over $100 million.  The tax liability is already carried on BH's books.

 

Thank you.  My mistake- you're correct about using the corporate tax rate.

[giofranchi]

I quickly built a large position around $350 last month because after I applied the "Biglari discount", the stock is still cheap

 

A “Biglari discount”???… I have never even thought about investing in a company which is led by a person who might cause the market to discount its true worth… And I would have never invested in BH if I hadn’t thought a “Biglari discount” was nothing but a complete nonsense! Imo the exact opposite is true!

 

This being said, imo your entry price will prove to be an excellent investment choice in the coming years. ;)

 

Gio

 

[dpvalliant]

I was wondering if anyone else has noticed.  That at the end of December the last few years BH stock price spicks during the last week or so of the month.  It's down about 17% or so this year so I'm wondering what will happen the last week of this month. I could be wrong but it seems to me that it does happen. 

 

I would like to hear if anyone else has notice it also.

[muscleman]

I quickly built a large position around $350 last month because after I applied the "Biglari discount", the stock is still cheap

 

A “Biglari discount”???… I have never even thought about investing in a company which is led by a person who might cause the market to discount its true worth… And I would have never invested in BH if I hadn’t thought a “Biglari discount” was nothing but a complete nonsense! Imo the exact opposite is true!

 

This being said, imo your entry price will prove to be an excellent investment choice in the coming years. ;)

 

Gio

 

Yeah. You read it right. Biglari discount.  :)

But I think you get my point as well. My reason is that, yes, there are arguments against Biglari and there are lots of value investors who used to have BH back in 2010 and 2011 sold out and still hate Biglari as of today. Therefore, I should apply the "Biglari Discount" into my calculation. If the stock price is cheap even after applying the "Biglari Discount", then there is a huge probability that the stock has bottomed out, because everyone who deeply hates Biglari has sold out, therefore I should buy before doing in depth research. If my research shows that this should be a short term trade instead of a long term investment, I still have a very good chance to sell at a small to modest profit. But if my research shows that this should be a long term investment, I have a good probability to have acquired at a good entry price.  Turns out the price did have moved out a little bit after I bought. :)

 

After I bought, I did in depth research and still reading as of today. I am more inclined to hold this as long term investment now.

[muscleman]

I was wondering if anyone else has noticed.  That at the end of December the last few years BH stock price spicks during the last week or so of the month.  It's down about 17% or so this year so I'm wondering what will happen the last week of this month. I could be wrong but it seems to me that it does happen. 

 

I would like to hear if anyone else has notice it also.

 

I noticed that when I first looked at BH. I think this year's year end pop will likely be less than last few years. The reason is because Biglari himself is required to put in at least 30% of his annual bonus into buying BH stock at open market. Therefore this information would cause the market to front run him and push up the price.

This year, he will not receive the big bonus, so this front running will not happen.

[giofranchi]

But I think you get my point as well.

 

Yes! I thought I knew what your answer would be. And it sounds logic and safe enough. Though I never do such things… What I can surely say is: if you change your mind on the merits of BH as a long term investment, I will be glad to buy your shares! ;)

 

Gio

 

[dpvalliant]

Thanks that make sense.

[APG12]

I will be speaking with Biglari and Cooley on Monday. Does anyone have any good questions to add to my list?

[ragu]

I will be speaking with Biglari and Cooley on Monday. Does anyone have any good questions to add to my list?

 

agaglio,

 

Many thanks for the offer to ask questions on our behalf. If I may, in what capacity are you meeting the two of them i.e. what is the agenda?

 

Best,

Ragu

[giofranchi]

I will be speaking with Biglari and Cooley on Monday. Does anyone have any good questions to add to my list?

 

Thank you very much agaglio,

dcollon is also meeting the two of them… and I have already sent him my list of questions! ;)

 

Cheers,

 

Gio

 

[APG12]

I will be speaking with Biglari and Cooley on Monday. Does anyone have any good questions to add to my list?

 

Thank you very much agaglio,

dcollon is also meeting the two of them… and I have already sent him my list of questions! ;)

 

Cheers,

 

Gio

 

Great!  :)

 

I will be speaking with Biglari and Cooley on Monday. Does anyone have any good questions to add to my list?

 

agaglio,

 

Many thanks for the offer to ask questions on our behalf. If I may, in what capacity are you meeting the two of them i.e. what is the agenda?

 

Best,

Ragu

 

BH has enlisted the services of an IR firm and is meeting with institutional investors. I've got about an hour to ask them questions.

[ragu]

BH has enlisted the services of an IR firm and is meeting with institutional investors.

 

Thanks for your response.

 

I'm incredibly disappointed that Sardar feels the need to do this.

 

Best,

Ragu

[BTShine]

Might it be in preparation for a proxy fight, etc?  Might Mr. Biglari try to highlight the value inside of BH (bringing the share price up closer to intrinsic value) so that he gets credit for good stock price performance?  Mr. Biglari might prefer this instead of the outside firm Groveland Capital pulling an Icahn or Ackman, which gives Groveland and not Biglari credit for 'unlocking the value' or 'creating awareness of the value' in Biglari Holdings.

 

Is that off?  Did the IR firm give any reasons as to why they are hired and Sardar Biglari is now meeting with investors?

 

 

[link01]

BH has enlisted the services of an IR firm and is meeting with institutional investors.

 

Thanks for your response.

 

I'm incredibly disappointed that Sardar feels the need to do this.

 

Best,

Ragu

I'm disappointed too. you'd think an undervalued share price would have him salivating like a kid in a candy store at the prospect of being able to meaningfully build his personal stake in a co he knows best & has control of at a cheap price. slightly tongue in cheek, but maybe he chafes at the idea that a cheap share price by extension also under values his abilities? the nerve!

but really my best guess is that either he's concerned about a possible loss of confidence on the part of his outside investors in the lion fund which holds BH, or he's come to realize that in order to successfully agitate himself onto any target company board seats he needs the confidence & sponsorship of institutions and other large investor groups.

[BTShine]

Interesting stat in this NY Times article. 

 

"About 281 activist campaigns have been announced so far this year, according to FactSet, the highest level in at least five years. The activists have largely prevailed in these battles, enjoying a 72 percent success rate, or nearly double the rate in 2003."

 

http://dealbook.nytimes.com/2014/12/09/taking-recipes-from-the-activist-cookbook/?smid=tw-share&_r=0

 

That statistic makes the potential activism from Groveland all the more interesting. 

[innerscorecard]

BH has enlisted the services of an IR firm and is meeting with institutional investors.

 

Thanks for your response.

 

I'm incredibly disappointed that Sardar feels the need to do this.

 

Best,

Ragu

 

Same here. This action is directly contradictory to what he constantly says in the annual meeting and shareholder letters about not talking to any investors outside of the annual meeting, not giving any special information outside of the shareholder letter, and treating all investors equally.

[tede02]

Does BH have any history of buying back it's own stock?  It was really interesting to read about the massive share repurchases Henry Singleton executed when he felt Teledyne was way undervalued and how it benefited shareholders dramatically.

[innerscorecard]

Does BH have any history of buying back it's own stock?  It was really interesting to read about the massive share repurchases Henry Singleton executed when he felt Teledyne was way undervalued and how it benefited shareholders dramatically.

 

Quite the opposite. Sardar is happy to dilute shareholders with rights offerings to raise cash (I'm not saying this is right or wrong).

[innerscorecard]

You're right of course. Dilution with compensation through rights offerings is constructively very different from simply issuing new shares, and it's unfair to simply say as I did "dilution" with all that implies.

[giofranchi]

You're right of course. Dilution with compensation through rights offerings is constructively very different from simply issuing new shares, and it's unfair to simply say as I did "dilution" with all that implies.

 

Not only!!

Rights offerings are a very good way to increase my investment in BH at a price substantially below BVPS after all the new shares have been issued! For someone like me, who always keeps a cash reserve at hand, those rights offerings are simply a great way to average down! Though I understand they might not be so great for cash strapped investors… ;)

 

Gio