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Biglari Holdings Starting to look interesting

July 19, 2010 | About:

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.

About the author:


Rating: 3.6/5 (11 votes)


Roke6362 - 7 years ago    Report SPAM

I am currently reading "Poor Charlie's Almanack". In it, he is particularly interested in a tendency called "Incentive-Caused Bias". I've only read it once, and don't have it in front of me, but the tendency is that the work performed by Biglari will be biased towards the compensation plan, and not his fellow sharehoilders.

I am from the Indianapolis area, and the word on the street here is that this compensation plan is more related to the acquisition itself, and not what each acquisition will do to shareholder value.

It is my understanding this is why the stock has tanked.
Lrm21 - 7 years ago    Report SPAM
I think this guy has a huge ego, he maybe worth some flying money/.

My main concerns.

1) He takes direct control of the acquisition target, right now he is CEO of Steak and Shake, and Western Sizzlin, how will this model work for many acquisitions?

Contrast with Buffet or Prem Watsa who leave management in place or bring in a rotating team.

2) The shareholder letter is all him, what about the team? How is this guy to build a major conglomerate.

3) He renamed the company after himself, more ego stroking.

4) He is ramming through a compensation package which a little outrageous

25% of any book value increase above 5%.

5) His actions are a somewhat disingenuous, if he really believes in himself, it should be enough to be principle shareholder and grow his net worth.

6) Pissing of Mario Gabelli is not a good sign.

Ferisoft - 7 years ago    Report SPAM
This might be a good sign either:

Biglari Holdings Inc. (BH) was not far behind, with insiders buying 15,083 shares at a market value of $4,721,937. Insiders now own 7.81% of the company's stock after increasing their overall holdings by 415.07% during the past six months.


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