Author Topic: BH - Biglari Holdings  (Read 1359109 times)

giofranchi

  • Hero Member
  • *****
  • Posts: 5509
  • Twitter: @giovfranchi
    • Master School Politecnico di Milano
Re: BH - Biglari Holdings
« Reply #470 on: April 25, 2014, 07:22:54 AM »
Crackerbarrel and Steak'n Shake are two very different animals.  Crackerbarrel's executives have done a mediocre job.  Steak'n Shake was falling off a cliff and was six months from bankruptcy.  So Sardar's arguments about capital allocation aren't quite on comparable levels here, nor completely accurate.  Frankly, I'm not sure why he didn't pick an easier target than CBRL!  Cheers!

I agree.
Anyway, 1 year and a half ago CBRL was an undervalued stock, and the healthy rise in price is testimony to that. But today CBRL is no longer undervalued, and from now on to be a good investment it must create value.
To create value, Mr. Biglari proposals make sense; CBRL’s management on the other hand is completely unconvincing…
Now, a shareholder should always think about the future, and not be content with the past, just because the recent past has delivered solid results. ;)

Gio
« Last Edit: April 25, 2014, 07:25:14 AM by giofranchi »
Portfolio: AAPL, AMZN, BABA, BOSS, BRK.B, FB, FFH, FIH.U, FINX, FWONA, GOOG, IBB, JPM, LBRDA, MKL, NKE, QQQ, SFTBF, SMH, TCEHY, V, XBI, XT


gg

  • Full Member
  • ***
  • Posts: 224
Re: BH - Biglari Holdings
« Reply #471 on: April 25, 2014, 08:22:06 AM »
Has anyone found any blogs or sites with notes from the annual meeting yet? If so, please share

oddballstocks

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 2252
    • Oddball Stocks Blog
Re: BH - Biglari Holdings
« Reply #472 on: April 25, 2014, 08:41:02 AM »
They also have very different demographics.

How so?  All of the freeway exits in the Midwest that have a Steak n Shake have a Cracker Barrel as well.  Having grown up in the Midwest and having frequented both places many of times I'd say the only difference is that Cracker Barrel's average patron age is older.

I can even see some of BH's rationale here, you can cut distribution costs in half by sending a truck to both locations along the same routes.
The ultimate edge for bank investors: http://www.completebankdata.com

peridotcapital

  • Hero Member
  • *****
  • Posts: 500
    • Peridot Capital Management LLC
Re: BH - Biglari Holdings
« Reply #473 on: April 26, 2014, 05:28:43 PM »
Here are some of my notes from the annual meeting. I've condensed them to what I think is most worthwhile, but feel to free to ask anything else if you want and I'll do my best to recall his answers.

First Guard: Blueprint for acquisitions, great manager who will stay on and be highly incentivized to continue strong underwriting results. Minimal float due to fact that property claims are paid out very quickly, but do expect to add casualty companies in the future (nothing in the works right now), where float would be more meaningful. SNS actually has more float than First Guard (gift card sales). Should expect some targeted growth (marketing initiative of $500,000 was one of the first moves) but nothing dramatic in the near to intermediate term.

Cracker Barrel: Lots of negative comments re: CBRL management. Do not get the sense he will be selling. Said he would only do so if the stock got to be "overvalued" and it forced his hand. To me, since it hit $118 and there was no movement there, it seems he will continue to hold, wait for TN law to expire in early 2017. He did say he would like to buy the whole company. As long as total shareholder returns are strong, proxy advisers will be against BH, and he won’t win board seats, but restaurant multiples won't rise forever. He believes he could cut 30-50M from expenses and increase traffic by 5% if he got on the board (conversely traffic has declined by 1% since the current CEO took over, despite 18% increase in marketing spend).

Steak N Shake: Increased G&A spend will start to stabilize after years of increases. Continue to focus on mostly int'l franchise unit growth (pipeline of 220 units), with a few units in the US (west coast is attractive, Santa Monica location will open this year). Focus is on high quality, great service, at lowest possible price. Not focused on margins (I asked about normalized margins for SNS and he sidestepped it) He clearly prefers guest traffic at expense of margin per guest (a la Costco, Walmart). Lots of licensing deals in the works too (SNS chili at select WMT locations and growing…. microwavable shakes in the pipeline). Despite saying he doesn't care about margins (which I don't believe, since he could lower prices further and would still have higher margins than Costco and Walmart), he did say that franchised locations could earn 50% margins (although current investment levels are above 50% of royalties).

Maxim: He had never seen the magazine. Bought a copy, read through it, and decided to buy it. Believes the brand itself is worth more than he paid (did not disclose purchase price). The plan is to upgrade the quality of the magazine later this year (September relaunch), but ultimately breaking or even losing a bit on the magazine is fine, as licensing the brand will be where the major money will be (Playboy business model) and where the transformation will be focused. The losses are ugly today, and will get worse as they spend more money to move into other areas. Expects a 2-4 year window until results start to show traction. No debt maturities to worry about, BH only assumed the assets and the old management team is gone. To me, this will likely be a major drag on BH's results for several years, but as we all know he doesn't care about the short term.

Lion Fund: A couple people gave him a hard time about the incentive fees he will get, price of the BCC sale, etc. He and Phil both dodged the meat of those concerns, but it sounds like most of the public market investments will be through the LPs and whole acquisitions will be through BH, with some minor exceptions (which were not expanded on).

CCA: It has not worked out well thus far, but it’s so small… only a “rounding error.” “I will focus on rounding, you will likely focus on error." BH has had $200 of gains for every $1 of loss so far. Current CCA management is doing the best they can.

Unico American: “No comment.” Interesting, because he commented on every other holding...

giofranchi

  • Hero Member
  • *****
  • Posts: 5509
  • Twitter: @giovfranchi
    • Master School Politecnico di Milano
Re: BH - Biglari Holdings
« Reply #474 on: April 27, 2014, 01:43:21 AM »
Thanks peridotcapital.

+1
Much appreciated! :)

Gio
Portfolio: AAPL, AMZN, BABA, BOSS, BRK.B, FB, FFH, FIH.U, FINX, FWONA, GOOG, IBB, JPM, LBRDA, MKL, NKE, QQQ, SFTBF, SMH, TCEHY, V, XBI, XT

OracleofCarolina

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 744
Re: BH - Biglari Holdings
« Reply #475 on: April 27, 2014, 11:57:15 AM »
It took Ali, 8 rounds to beat Foreman in Zaire. We are only in round 4. A lion doesn't worry about barking chihuahuas.

These were some of the thoughts voiced by Biglari at the meeting. I think Larry from Cracker Barrel was present.

gfp

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1835
Re: BH - Biglari Holdings
« Reply #476 on: April 27, 2014, 02:07:43 PM »
Also, if he sells CBRL, the book value will get hit because of taxes and impact his compensation. He will never do it.

Why wouldn't book value already reflect deferred taxes as a liability?

peridotcapital

  • Hero Member
  • *****
  • Posts: 500
    • Peridot Capital Management LLC
Re: BH - Biglari Holdings
« Reply #477 on: April 27, 2014, 03:52:29 PM »
Quote

Also, note that he is doing double dipping - getting paid at both Lion Fund and BH for book value increases.


Actually, he isn't getting paid twice on the investment profits. The bonus agreement with BH covers only book value increases from operating earnings (the calculation excludes Lion Fund(s) profits to avoid getting paid twice).

Parsad

  • Administrator
  • Hero Member
  • *****
  • Posts: 8772
Re: BH - Biglari Holdings
« Reply #478 on: April 28, 2014, 12:19:55 AM »
It took Ali, 8 rounds to beat Foreman in Zaire. We are only in round 4. A lion doesn't worry about barking chihuahuas.

These were some of the thoughts voiced by Biglari at the meeting. I think Larry from Cracker Barrel was present.

Is Sardar planning on losing Biglari Holdings to a Leon Spink's type of company a few years later?   ;D  Maybe Cracker Barrel should acquire Biglari Holdings.

I love it when people use great historical winning analogies to explain their defeats, rather than saying we've lost the first four rounds, but are persistent and hope to win eventually. 

As if he would prefer to go eight rounds with Cracker Barrel, rather than beat them in the first round!  Cheers!
No man is a failure who has friends!

OracleofCarolina

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 744
Re: BH - Biglari Holdings
« Reply #479 on: April 28, 2014, 08:51:13 AM »
Here are my notes from the BH annual meeting April 2014, St Regis NYC

Opening remarks- Biglari showed a slide of the corporate structure and made some remarks about having maximum latitude in capital allocation, looking at cash flow instead of corporate earnings, they are a capital allocation company, no redemption risk which is a big competitive advantage, flexible in their approach, unconventional but logical…and so on

First Guard- Immediately knew it was a special company, looked at financials and 2 days later Sardar and Phil flew to Venice Fl to meet Ed Campbell. Ed Campbell is one of the most detailed people Sardar has ever met. Ed is the key to the business, a very special CEO. Sardar knew all the combined ratios for the past couple of years. 2013 -76.4, 2012-79.7, 2011-90.1, 2010- 80.1, 2009-65.4. This company has vitually no float but it is a great way to enter the insurance business and introduce the industry and regulators to Biglari Holdings. Currently insuring 12700 trucks, BH invested $500,000 in new marketing initiatives and needs a combined ratio in the 80’s at worst to make money.

International Franchising – signed a deal for 20 units Kuwait(they got the money already), 15 in Pakistan, 50 in Saudi Arabia(1st store should open in a couple of months)

Maxim- Feb 14th he was reading about collapsed deal, got financials, then went to Barnes and Noble and bought a copy of Maxim. Made the call and bought the brand. Believes the brand has strong potential and wants to transform the business. This will take at least 2 years and 30 million to make happen. The results will get uglier before they get prettier. Will reposition the magazine by September with better paper quality, uplifting stories, better ethos.  Maxim has a strong brand, in 70 countries, in Russia there is a restaurant and credit card. Sardar stated a prominent group offered to buy a piece of Maxim while he was making the deal and he could have flipped for a quick profit but he declined. 20% of the readers are women, has more subscribers than GQ, Esquire, Rolling Stone but not the ad pages

Lion Fund I and II – 500 million under mgmt, they believe the deal is generous to BH shareholders with a “0” management fee and 25% of profits after a 6% hurdle and high watermark.

Steak and Shake- Sardar has hired people from outside to restaurant industry to help with the next stage. Hired a Federal Express bar code guy, lady from Advance Auto distribution, JC Penney hr guy, and a Toyota university guy. More licensed SNS sku’s coming, they get 8.6 million in float from SNS gift cards

Cracker Barrel- inmates are in charge of the asylum, don’t know why they don’t agree with him, they are like a bunch of Chihuahuas barking, if you are a Lion you don’t bark a lot of arguments, they are spending 5 million to fight him with their cognitive inadequacies and stupidity. This is like the “rumble in the jungle” ’74 Ali-Foreman in Zaire, that went 8 rounds are we are in the 4th round, he would like to make a bid for the whole company but can not. CBRL is an unbelievable brand with outstanding real estate portfolio, it is a Chipotle brand without the Chipotle results. Operationally they are not doing well, COGS is going up, traffic is down. But as long as the stock price goes up, ISS will be on their side. He believes he could reduce their expenses by 30-50 million and increase traffic by 5%. Only way he gets out is if the stock gets way overvalued and forces his hand. Believes CBRl should go international, big potential there.

Licensing agreement- put in place to prevent some schmuk from coming in , bureaucrats create problems and chaos, he is not going anywhere but would get a lot of money if forced out, it goes away in 19 years

Random Notes – Sardar has improved by looking at so many deals. What could have taken him 5 hours to analyze years ago now takes 5 minutes. He recommended “Creativity Inc” as a recent book. Phil likes any of O’Reilly’s books and Sardar gave him Titan to read.  All in all, I thought a very informative meeting. Sardar is amazing in his ability to rattle off numbers. I have no doubt he is going to make a lot of money, the question is how well will the BH shareholders do.