BH - Biglari Holdings

[TwoCitiesCapital]

I'm sure Biglari is an operational phenom when it comes to O&G exploration and production. This is what takes the stock to $10,000/share

 

/Sarcasm

[Cevian]

"Biglari Oil, think like an entrepreneur, go further"

[Spekulatius]

[Read the Footnotes]

Trust me. He IS going to drink your milkshake.

 

[RVP]

Southern oil acquisition looks attractive. With the caveat that its cyclical and limited data provided, they paid <3x after-tax TTM earnings and <6x after-tax 2018 earnings. Also doesn't look like they acquired much on-balance sheet liabilities (aside from operating lease liabilities).

[InelegantInvestor]

https://www.restaurantbusinessonline.com/financing/sardar-biglari-demands-documents-cracker-barrel

 

Good thing Sardar knows how to fix Cracker Barrel. Too bad he has no idea how to fix SnS

[awindenberger]

Does anybody here know or remember what % of The Lion Fund I was owned by Sardar himself? BH owns about 2/3s of the assets and obviously there are additional early investors who own a portion of the remaining 1/3.

[OracleofCarolina]

wonder how that visit to inspect Cracker Barrel's records went :)?

[RVP]

Financials for their recent oil and gas acquisition (Southern Oil) released today.

 

https://www.sec.gov/Archives/edgar/data/1726173/000092189519002877/ex991to8ka07428007_11252019.pdf

 

The balance sheet looks good and decent profitability if you assume much of the capex is growth (an assumption that is yet to be proven in the E&P space).

[awindenberger]

Financials for their recent oil and gas acquisition (Southern Oil) released today.

 

https://www.sec.gov/Archives/edgar/data/1726173/000092189519002877/ex991to8ka07428007_11252019.pdf

 

The balance sheet looks good and decent profitability if you assume much of the capex is growth (an assumption that is yet to be proven in the E&P space).

 

The Capex is definitely growth as evidenced by the revenue growth over the periods we can see. I was excited to see it fall off during H1 2019, as that will mean higher cashflow. I'm trying to figure out what I'm missing with this transaction as it seems like Biglari was able to buy it for less than 2x 2019 FCF. Looking forward to the annual letter and meeting to ask him more questions about it.

[frugalchief]

While thinking about this year's annual meeting, I just remembered this hilarious account of last year's Fyre Festival of Capitalism.

 

https://seekingalpha.com/instablog/50239042-valueseeker64/5299346-fyre-festival-of-capitalism

 

If anyone happens to be going and is willing to ask a question for me, there is a question I'd love to ask. Please let me know and I will send a message to you.

 

What a good reminder of the entertainment we get from the meeting.  ;D :'(

[thowed]

Glad the report doesn't disappoint:

 

Quote: Among the reasons for our swiftness in decision-making concerning acquisitions is our avoidance of the deep-rooted standard practice of “due diligence.”

[NBL0303]

The annual meeting sounds like a classic Biglari horror show. I got notes directly from someone who was there. Obviously, I cannot confirm the accuracy of these, though I believe they tried to get as accurate notes as they could but who knows. The notes are very detailed and there are a lot of them, I’ll just post a few highlights below:

 

-Sardar said they are not going to do any buybacks (or Lion Fund II purchases), they need the liquidity and are thus not in a position to buy any Biglari Holdings shares.

 

-“Steak n Shake’s debt is an issue”

 

-“Steak n Shake’s business model did not work”’

 

-Sardar said shareholders should learn to “embrace failure.” –I checked, this he swears is a quote. Sardar actually told shareholders to “Embrace failure.”

 

-He said “Babe Ruth struck out twice as many times as home runs he hit.” "Embrace failure"

 

-“The operating shortfall at Steak n Shake is far wore than we anticipated”

 

-They are looking to sell the land/building for 15 company-owned Steak n Shake stores.

 

-The leases for just the closed units are costing them millions a year, average lease term for these is four years.

 

-“Steak n Shake is far from competitive in terms of window time and total time” (he thinks this is in terms of the speed of service).

 

-Sardar apparently also said there is a good argument that could be made that incentive compensation hurdle rates could be lower.

 

-The insurance companies are doing well. He said he liked their new insurance company acquisition Southern Pioneer. He said, in its history “it has a combined ratio less than 100.”

 

-Sardar said he would not talk about the pending lawsuits (apparently they are involved in a law suit related to the oil deal and maybe some other suits – unclear).

 

-They have basically shut-in and choked off most or much of their oil company’s production due to the low oil prices. Thus, it is no longer generating cash for them. They did not/do not hedge prices.

 

[coc]

Thanks @NBL for posting the notes. If anyone comes across others, I’d be interested to know. Thanks again.

[AzCactus]

sorry if I soon trite but why are people even talking about Sardar and Biglari anymore.  This company has eroded investor capital very quickly.  The leadership appears arrogant and has a whole bunch of operational issues. 

 

Can anyone let me know the upside here ?

 

 

[Foreign Tuffett]

sorry if I soon trite but why are people even talking about Sardar and Biglari anymore. This company has eroded investor capital very quickly.  The leadership appears arrogant and has a whole bunch of operational issues. 

 

Can anyone let me know the upside here ?

 

Plenty of regular or semi-regular posters have been following the company for years. It's reasonable to expect that there will still be a few posts on the name, even if no one is bullish.

[keerthiprasad]

sorry if I soon trite but why are people even talking about Sardar and Biglari anymore.  This company has eroded investor capital very quickly.  The leadership appears arrogant and has a whole bunch of operational issues. 

 

Can anyone let me know the upside here ?

 

Entertainment value?

[NBL0303]

sorry if I soon trite but why are people even talking about Sardar and Biglari anymore.  This company has eroded investor capital very quickly.  The leadership appears arrogant and has a whole bunch of operational issues. 

 

Can anyone let me know the upside here ?

 

That is when you know a stock has entered a kind of new level of super-toxicity - when people think it should not even be posted about at all.

[coc]

sorry if I soon trite but why are people even talking about Sardar and Biglari anymore.  This company has eroded investor capital very quickly.  The leadership appears arrogant and has a whole bunch of operational issues. 

 

Can anyone let me know the upside here ?

 

That is when you know a stock has entered a kind of new level of super-toxicity - when people think it should not even be posted about at all.

 

Agreed. It’s a heresy now. Love it.

 

(Not long or short for many many years here.)

[TwoCitiesCapital]

It was a few years back where I had made the comment that I was constantly tempted by this name, but always glad that I didn't end up buying.

 

Years later, and a near 70% collapse in share price since the share split, it appears tempting again.

 

That being said, the correct course of action all those other times it looked tempting was to ignore it. Obviously this is only known in hindsight, but it's a strategy that has worked and may continue to work.

 

At some point, the price will be low enough, but shareholders have consistently underestimated the cost of Biglari's self-serving and I can't find any reason to expect it would be different this time. 

[Ballinvarosig Investors]

-Sardar apparently also said there is a good argument that could be made that incentive compensation hurdle rates could be lower.

I love this bit.

 

• First he said he wouldn't take a proper salary
  
• Then he awarded himself a large salary
  
• Then he award himself the bumper incentive plan
  
• Then he stuffed the payroll with family stooges
  

 

The latest move to re-write the incentive plan is hilarious. When the Trump corporate tax cut came in, it resulted in a huge windfall for BH whose deferred tax bill was suddenly cut drastically ensuring that Biglari trousered nearly $10M in "performance" fees for that year. The guy was happy to be paid out for something that was completely out of his hands, but has now realised that the high-water mark for the incentive plan has been blown out of the water, so he's now going to have it lowered!

 

You couldn't make it up! He gets paid astronomical amounts no matter what happens to BH. Sardar Biglari is living the dream. He's topped it off be owning a sleazy smut magazine, appearing onset for photo shoots with the girls. Greed is good, my friends.

 

[enoch01]

It was a few years back where I had made the comment that I was constantly tempted by this name, but always glad that I didn't end up buying.

 

Years later, and a near 70% collapse in share price since the share split, it appears tempting again.

 

That being said, the correct course of action all those other times it looked tempting was to ignore it. Obviously this is only known in hindsight, but it's a strategy that has worked and may continue to work.

 

At some point, the price will be low enough, but shareholders have consistently underestimated the cost of Biglari's self-serving and I can't find any reason to expect it would be different this time.

 

I've had similar thoughts in the past as the price has deteriorated.  But the deterioration has always seemed rational: he has proven time and again it has never been safe to be his business partner.

[bizaro86]

It was a few years back where I had made the comment that I was constantly tempted by this name, but always glad that I didn't end up buying.

 

Years later, and a near 70% collapse in share price since the share split, it appears tempting again.

 

That being said, the correct course of action all those other times it looked tempting was to ignore it. Obviously this is only known in hindsight, but it's a strategy that has worked and may continue to work.

 

At some point, the price will be low enough, but shareholders have consistently underestimated the cost of Biglari's self-serving and I can't find any reason to expect it would be different this time.

 

I've had similar thoughts in the past as the price has deteriorated.  But the deterioration has always seemed rational: he has proven time and again it has never been safe to be his business partner.

 

How much would you pay for $100 in a box?

 

What if the box was held by someone who has said they are going to take the money in the box?

 

Seems like BH is very much the second type of box.

 

 

[peridotcapital]

sorry if I soon trite but why are people even talking about Sardar and Biglari anymore.  This company has eroded investor capital very quickly.  The leadership appears arrogant and has a whole bunch of operational issues. 

 

Can anyone let me know the upside here ?

 

I will take a shot at this. When I look at BH I ask myself "what parts is Sardar unlikely and/or unable to screw with?" Assuming there are any, are those pieces alone worth owning at a certain price? If so, what is that price? Assume zero value for everything else. Depending on BH's share price, one can start to get quite comfortable at a certain point.

 

So what is included in this theoretical "safe, possibly investment-worthy" bucket? First it was just the non-controlling CBRL stake. Then he added First Guard. And recently he added another insurance business. I think that's about it right now... the things he is directly involved with are too dangerous (Maxim and Restaurants) and the oil and gas business is so tough, even if he isn't involved.

 

So... how much are those 3 aforementioned pieces worth? Add in a large haircut for margin of safety. How does that resulting value compare with the current BH equity value of $200M...? It is an interesting exercise depending on where BH is trading...

[awindenberger]

-Sardar apparently also said there is a good argument that could be made that incentive compensation hurdle rates could be lower.

I love this bit.

 

• First he said he wouldn't take a proper salary
  
• Then he awarded himself a large salary
  
• Then he award himself the bumper incentive plan
  
• Then he stuffed the payroll with family stooges
  

 

The latest move to re-write the incentive plan is hilarious.

 

NBL, your notetaker seems to have been pretty lax with his notes on this question.

 

Sardar was asked: You are set up with the 6% performance fee that doesn’t kick until the high water mark. If there was a clone of BH that started today, would you still use that threshold given high equity prices and low interest rates, or would you still think that was the best set up if starting a firm today?

 

This was my brother's notes from his response:

 

Hurdle rate is tough. It should cover covered interest rates at least. Hurdle to overcome would cover the risk-free rate, + a % paid. There could be some reasonable arguments to lower hurdle rate if starting over, or take the Charlie Munger route (33%, no hurdle). That said, if I did change it, I wouldn’t change it much. I liked the 5% used with the Lion Fund.

I was paid for performance - $500m of returns generated created $83m incentive comp for me. I’m in it for the long-run and won’t make those modifications just because there have been some down years.

 

So lets unpack this: Sardar was asked a hypothetical question, and he answered it hypothetically, but concluded by noting that he likely wouldn't change it much were he to be starting from scratch. He also noted he had no plans to change anything now.