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Third Avenue Small-Cap Value Fund Comments on Seaboard Corp

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Sep 14, 2016
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We actually initiated our investment in Seaboard Corporation (SEB) ("Seaboard") with a small weighting at the end of 2Q16 and continued to build our position in 3Q16. Seaboard is a diverse global agribusiness and transportation company. In the U.S., Seaboard is primarily engaged in pork production and processing as well as ocean cargo shipping. Overseas, Seaboard engages in commodity merchandising, grain processing, sugar production and electric power generation. Seaboard also has a 52% interest in the turkey company Butterball, a brand very well-known to many consumers in the U.S.

Despite what we see as high investor neglect of Seaboard due to low name recognition among most investors, we were drawn to the company by the stable demand for its products and services and its impressive asset portfolio, which has allowed Seaboard to compound its book value at double-digit rates over the long-term. The opportunity to invest was presented largely due to a challenged 2015 for the company when industry pork production outgrew demand. This resulted in a decline in pork prices and weighed on the company's profits and stock price.

We believe the double-digit returns Seaboard previously generated in this business are poised to return with a rebound in pork prices and stable production costs. Part of our confidence in the long-term outlook comes from the fact that Seaboard has been extremely well-managed by the same Bresky family since 1918, which still owns a majority of the company. In addition to being strong operators, Seaboard's management has proven to be very adept investors, making opportunistic acquisitions such as Butterball while also maintaining a very strong balance sheet. The company currently carries a large net-cash balance, supporting creditworthiness and downside protection.

We were able to invest in the company at a price around the company's book value, which we view as very attractive given the quality of its assets and management's track record of building shareholder value. We would also note that we believe Seaboard has a hidden asset of sorts in Butterball, given the carrying value is substantially below private market values, based on our analysis.

From

Third Avenue Management (Trades, Portfolio)'s Small Cap Value Fund third quarter 2016 commentary.

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