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Luby's Bargain Status: Real Estate Rich Highly Fixable Opportunity

August 06, 2014 | About:
Shadow Stock

Shadow Stock

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The goal was to examine companies over 40 years public. Then, discover material real estate holdings on the books below fair market value. Several companies did pass this test comparing enterprise value to land, buildings and improvements. As a result this idea was worth sharing, restaurateur Luby’s (LUB). It’snot only real estate rich. Even more important, Luby’s is a highly fixable opportunity to leverage its diverse assets.

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Luby’s founded in 1947 is multi branded restaurant and contract food services company. Brands include Luby’s Cafeteria, Fuddruckers, Cheeseburger in Paradise and Luby’s Culinary Contract Services. In addition brands are Luby’s, Etc., Koo Koo Roo Chicken Bistro (“Koo Koo Roo”) and Bob Luby’s Seafood.

Restaurants, 181 are owned and operated as of February 2014. The 181 restaurants are grouped as follows, traditional cafeterias 94 , gourmet hamburger 66, casual dining /bars 19, one upscale fast serve chicken restaurant and one seafood restaurant. Furthermore as of February 2014, 22 Culinary Contract Services facilities were in operation. These facilities service healthcare, higher education and corporate dining clients in Texas and Louisiana. Lastly, Luby’s (LUB) is a franchisor for 114 franchised Fuddruckers restaurants. The owners of these franchise units pay royalty revenue.

The stock trades at a discount to historical and industry valuations using P/B, P/S, P/Tangible Book. Current book value per share is 6.13 versus the average 2009 to 2013 value of 5.97. Price to tangible book value is 1 versus the 2010 to 2013 average balance of 1.12.Moreover, management has skin in the game, 29.85% held by insiders. Capital structure is favorable, share count stable for years.

Real estate and brand names reported below fair market value can be managed more effectively yielding higher free cash flow. If not by current management a competitor or private firm will step forward to unlock its value. Note, the buildings and land have been on the book for many years, over 50% of their properties are owned. Frudruckers was acquired in bankruptcy at a discount during 2010.
 

Real Estate;

Luby’s Inc owns land and buildings of 70 Luby’s cafeteria, 16 Fuddruckers restaurants. Five of these restaurant properties contain excess building space or an extra building, occupied by 10 tenants unaffiliated with Luby’s, Inc. Three owned properties are planned to develop for future use. Additionally, five owned other-use properties, one used as a bake shop supporting baked products for restaurants. Also,one location is leased to third party tenants and three leased to Fuddruckers franchisees.

For further analysis I took restaurant stocks with market capitalization from 100M to 2,500M. The final list totaled 52. A few things stood out within the group of 52. Luby’s (LUB) is 45% off its 52 week high of $9.19, ranking as the second largest drop from the 52 week high. This indicates an oversold stock. In addition , LUB ranked as follows; top 10 for 5 year revenue growth, first for worst YTD performance, fourth for lowest P/S valuation, fifth for largest percentage owned by insiders. Note the price performance, price to sales and book are near two year low.

Positive insider activity update as of 08/05/14

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Current price = $4.90 (08/06/14)

Market Cap: 139.21M ,Enterprise Value: 173.41M

Price/Sales (ttm): 0.35 , Price/Book (mrq): 0.80

Enterprise Value/Revenue: 0.43

Enterprise Value/EBITDA (ttm): 8.87

Revenue (ttm): 400.80M , Revenue Per Share (ttm): 13.92

Qtrly Revenue Growth (yoy): .90%

Gross Profit (ttm): 248.95M , EBITDA (ttm): 20.86M

Shares Outstanding: 28.39M ,Float: 18.09M

% Held by Insiders: 29.85% ,% Held by Institutions: 46.40%

Short % of Float: 1.90%


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