Steak n Shake results just recently released were very impressive. The company generated over $20 million in EBITDA and continue to show improvement. And those results are carrying the additional cost of ramping up the franchising strategy, but without revenue contribution. Continued existing store improvement aided by the roll out of franchising in the years to come should provide for continued strong cash flow generation.
Assuming a reasonable 8x EBITDA multiple on $80 mm of EBITDA from the restaurants values those businesses with a value of $640 million. Subtract the roughly $115 million of debt and you arrive at an EV of $525million just for the restaurants.
Now add the $250 million in Cash and Investments held at the BH level and the total EV value of BH should be around $775 million.
That's $550 per share.
And that $550 has much upside potential in the years to come as the existing operations continue to improve, the existing portfolio grows, and the $80 million of free cash flow gets allocated each year.
I think this stock will double in the next 3-4 years.
I'm not sure why people are doubting Sardar Biglari. He's done everything he said he would do. His credibility, in my mind, is very high. He understands that you need to focus on the underlying operations first and foremost.
I know there is a criticism that he is starving SNS with capital, but I think that's not true. I read a conference call transcript from about 5 years ago held by the prior management. First, they sound like they didn't know what they were doing and I see why they were running the company in the ground. However, on that call, according their numbers maintenance capex for SNS was $6-$7 million per year. That's about what Sardar is spending now- so all he's done is cut off the capex for new stores, while keeping the maintenance capex to make sure the existing stores are in good shape.
In the next 5 years, the company should generate about $400 million in free cash flow- that's almost equal to the current enterprise value. As long as he doesn't make major blunders with that cash, value will grow. One thing he has proven effective at is making investments- and he's don't that well for the last 12 years through some tough environments.
The bottom line is that the stock is cheap, Sardar is executing very well, and the future for BH looks better than ever.
Art, Thanks for your reply. Your comments are thoughtful but your analysis, IMO, is being distorted by mixing and matching numbers. I won't go through your post item by item, but I will comment that EV/EBITDA is a valuation done designed to value companies without regard to how they are capitalized. The idea is that a buy could acquire the company based on the enterprise value and then capitalize however they choose. That's why you don't add include some cash for working capital as you have done. In other words, the multiple is capital structure neutral and allows for useful analysis.
CBRL results are good this morning and Sardar is looking like a genius by buying 15% of the company at much lower levels. I estimate he has made north of $30 million in the last few months on this investment alone. Great capital allocation and proving once again, that he is a bargain at his current compansation level.
I believe BH will be north of $500 within the year.
You think an 8x EBITDA multiple for a restaurant is reasonable? To each his own, I guess. I just quickly looked at WEN, RRGB, CBRL and none of them are trading at an 8x multiple. And the owners of those restaurants get 100% of the income. The owners of SNS only get 75% of the income above the hurdle rate.
You should also go back and read the assumptions involved with the sale of Biglari Capital and WEST and then see if you think Sardar is doing everything he said he would.
Buying WEST (or maybe it was Biglari Capital, I forget) was supposed to grow BH's asset management business. How has that worked out? In the last 2 years, the asset management business has had net outflows of about $14 million.
TLF has raised about $3.7 million in the last 2 years combined (and part of that may just be Sardar's personal money). In the prospectus filed in connection with the sale of Biglari Capital, he assumed "a conservative capital infusion of $50 million over five years". Oops.
They also said, "Mr. Biglari and the acquisition of BCC are vital to fulfilling the Company’s plans to enlarge its asset management division". Double oops.
He's also hasn't been able to close on a single wholly-owned company. I guess he changed the name to "Biglari Holdings" because he knew it would just hold the companies that Biglari was already involved in.
I'll grant you that the turnaround at SNS was impressive, but I don't know how much of that was Sardar. If he gets credit for turning around SNS, then he should get the blame for Western Sizzlin stores...how many of those have closed in the last 5 years?
Thank you for a good and thoughtful analysis. It is rare on yahoo and I tend to agree with you.
However, I think people are skeptical of Biglari because he is an as-ho-le. He is selfish and arrogant.
I think one needs to combine the two concepts - cheap stock maybe on FCF basis, decent investments/cash balance at the parent, and the ah-le factor. My margin of safety leads me to a buy price lower than today's price but I agree the stock has a good future.