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Biglari Holdings Is a Buy

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- By Jonathan Poland

In the search for the next Berkshire Hathaway (BRK-A)(BRK-B), Biglari Holdings (BH) is one name that comes up.

It is a small cap with very a diverse set of subsidiary companies, from the Western Sizzlin and Steak-N-Shake restaurants, which account for almost all of its revenue, to the publication Maxim and commercial vehicle insurance firm First Guard, which the company's chairman and CEO Sardar Biglari has called the "ideal acquisition."

Together they generated $840 million in sales and $50 million in net income during 2017, good for $40.77 per share in the last 12 months and a book value of $276.31. What's more, Biglari only spends a fraction of its income on capex and has significantly more capital invested than investors see by simply looking at the balance sheet.


The problem is that Sardar Biglari doesn't seem to know whether he wants to build a company or manage money. He owns Biglari Holdings through his Biglari Capital, which gives him a 54% stake and the ability to charge incentive fees to manage outside money while also running this mini-Berkshire conglomerate. That said, he has some impressive achievements. He has brought back two losing restaurant franchises and built a sizable organization from them.

Source: Chairman's letter

At the end of 2017, the company had over $1 billion in total investments, including $925 million in Sardar's Biglari Capital via the firm's Lion Fund and Lion Fund II LPs, of which Cracker Barrel (CBRL) is the largest position with a 19.7% stake. On that alone, the company is worth more than the current $390 million market capitalization would suggest.

Source: Chairman's letter

However, 2018 was not a good year for the company, as it posted a net loss of 1.8 million in the first quarter, a $7.5 million net loss for the second quarter and $13.7 million net loss for the third quarter. Further adding to the situation was the decision to split the stock into two separate classes. This is where opportunity presents itself, especially for buyers who are just hearing about it.

Nothing changed in the company itself, but both stocks have dropped by more than 50% with the B shares of Biglari Holdings (BH) falling from the mid-$400s down to the current price. Again, the company is just as strong financially as it was in May, yet the price put on it by the market is so cheap that investors should back the truck up, at least until the stock gets back on par with its actual capital value.

Disclosure: I am not long or short Biglari Holdings.

This article first appeared on GuruFocus.