Maran Capital Management presentation on Biglari Holdings from the ValueX Vail, June 24, 2015.
Biglari Holdings – A ~50-65c Dollar
Price is what you pay:$410/sh(~$850mm market cap)
Value is what you get:
Executive Summary – Biglari Holdings (BH -$410):
- Platform company comprised of cash, investments (largest holding: CBRL), and operating businesses Steak n Shake, Western Sizzlin’, Maxim, and First Guard
- Run by Sardar Biglari: entrepreneurial CEO who is a proven operator and capital allocator
- Core operating business Steak n Shake undergoing resurgent growth through capital-light franchising and traffic-driven same store sales
- Significant Margin of Safety: the stock is trading close to cash/investments on the books net of all recourse debt and deferred tax liabilities
- Investors are essentially getting Steak n Shake for free, and are paying nothing for any future capital allocation-driven upside
- Conservative intrinsic value estimate: $650+ per share (and growing); potential for $800+ within three years
- Opportunity created by complex structure, and controversy over corporate governance and executive compensation
- Recent tender for ~1/4 of outstanding shares at $420/shby fund controlled by CEO –he seems to think it is very cheap at these levels and is backing up the truck
Steak n Shake
- 81 year old iconic American brand
- $765mm 2014 net revenue
- 417 company-owned stores (AUV: ~$1.8mm)
- Estimated company-owned restaurant EBITDA $75-85mm/yrover last three years
- Renewed focus on franchising –129 franchised stores, up from 71 in 2010
- 239 franchises in the development pipeline at YE fiscal 2014
Steak n Shake – Same Store Sales
- Remarkable traffic-driven turnaround in same store sales by present management starting in 2009 –lowered prices, improved quality
- 25 consecutive quarters of positive same store sales
- ~30% cumulative increase in same store sales since 2009
Steak n Shake – Franchise Business
- Franchise Fees and Royalties have grown at a 30.6% CAGR since the beginning of the franchising initiative (FY 2010)
- Estimated direct franchising expenses were $10-12mm in 2013 and $17mm in 2014 –the company is spending up front to build the business
- BH targets franchise initiative break-even in 2016
Steak n Shake – Value
Valuation Summary –Base Case:
Company-Owned –8x run-rate EBITDA of $75mm = $600mm (~11 –12x FCF)
Franchise –20x steady state FCF contribution of $7.5mm = $150mm
Total SnS–$750mm Enterprise Value
Higher Valuations are Possible:
Upside Case –$85mm of company-owned EBITDA and $15mm Franchise FCF stream a few years out: fair intrinsic value could be $950mm+
IPO Scenario –What would SNS trade at in these markets if it were IPO’d?
Maxim
Turnaround Effort Underway
- Cut cover price –$5.99 to $3.99
- Improved quality –larger and higher quality paper
- New editor/team –Editor Kate Lanphearformerly of NYT and Elle
- Ad pages up 63% on average 2015 YTD vs. 2014
- 26 vs. 16 per issue on average
- March 2015 print ad revenue up 200%+ y/y
Value
- Base Case: $25mm (BH has already received offers for Maxim for more than they paid for it)
- Downside Case: After tax loss of $10-20mm
- Upside Case: $100mm+
- Largest general interest men’s magazine
- Strong brand -$100s of millions have been spent advertising the brand over the years
- BH bought the brand for $10-15mm after the prior owner had several deals fall apart in the $25-28mm range
- The business previously traded hands in 2007 for $250mm
- Still losing money, and outcome is uncertain, but risk-reward is skewed very positive
- Range of outcomes perhaps loss of $10-20mm to gain of $100mm+
See full PDF below.
