Biglari Holdings Starting to look interesting
Biglari Holdings is a holding company that young value investor Sardar Biglari has created. The main piece of Biglari Holdings is Steak N Shake which Biglari gained control of and has turned around remarkably quickly.
Biglari and his board of directors recently put forward a unique compensation plan for Sardar which will have him paid for performance. This plan although designed to align Biglari's interests with shareholders is also quite controversial for various reasons that I will examine later. This plan being announced has resulted in a rather large sell off of BH shares from $400 down to $280.
So the question for today is are they an interesting value at these prices ?
Back of the envelope valuation to see if more work is warranted:
Cash flow from operations at current run rate - $60mil
Annual maintenance capex - ($10mil)
Cash flow available to owners - $50mil
Assign a 10 multiple as a fair price $50mil x 10 = $500mil
Add cash and securities of - $81mil
Less long term debt of - $25mil
And the resulting value of the enterprise is $500mil + $81mil - $25mil = $555mil
Value per share is $555mil / 1,431,608 shares = $388 per share
Current share price is $280 which is $280/$388 = 72% of the rough estimate of fair value. Or an upside of about 39% to reach fair value.
Conclusion: Given the track record Biglari has as an investor investing with him at a sizable discount could be quite attractive. This is just a rough valuation though, so more work is required. As is some soul searching and analysis of that compensation package.