So Friday after the close Steak n Shake issued their Q1 results and also announced that they would change the name of the holding company to Biglari Holdings, Ticker BH. And no, this is not Berkshire Hathaway, although anything that makes investors conjure up images of Berkshire Hathaway when thinking of Steak n Shake is sure to make Sardar Biglari smile.
So the question is, after spending money outfitting restaurants with pictures of himself as Chairman and CEO of Steak n Shake (see above), will he spend the money changing the wording to Chairman and CEO of Biglari Holdings?
I believe this is an unfortunate choice of name, I would have preferred something like SNS Holdings, but I will agree that it makes sense to change the name of the parent holding company. But a change like this gives more credence to those who do not want to invest with Mr. Biglari.
I will point readers to an exchange on realmoney.com’s columnist conversation (the paid version of thestreet.com) that occurred today:
Scott Rothbort Berkshire’s B Shares Are Grade A 2/1/2010 3:06 PM EST
In what may be the ultimate act of hubris, Steak ‘n Shake (SNS) is changing its name to Biglari Holdings. The company posted a modest fourth-quarter profit of $3.82 per share, which is reflective of the post-reverse-split-stock outstanding share count. I think this company is a rollup that will eventually end up in a disaster. As a restaurant company, it also leaves much to be desired. I certainly don’t desire the stock, which was rated an avoid in my December newsletter. Caveat emptor. If you want the real thing, buy Class B shares of Berkshire Hathaway (BRK.B). Position: Long BRK.B
Jonathan Heller Biglari: Hubris or Moxie? 2/1/2010 4:08 PM EST
With all due respect to Scott Rothbort, I find it entertaining that Sardar Biglari wants to change the name of Steak n Shake to Biglari Holdings. Definitely shows some moxie, not always a bad thing. As a shareholder, I will vote against the name change, but the truth is the current name Steak n Shake no longer fits. This is now Biglari’s capital allocation vehicle, right or wrong, and anyone holding shares, or contemplating taking a position, better understand that. The proof will ultimately be in the pudding, but I for one am hanging on to the shares. Position: Long: SNS
And that in a nutshell is the discussion over Steak n Shake as an investment. Do you choose to invest alongside Mr. Biglari, or do you choose to avoid him? We won’t know for a while, likely years, whether investing with Sardar is a smart thing to do. But we do know his partnership has had acceptable returns even if Western Sizzlin didn’t turn out to be a great investment. But what about Steak n Shake the restaurant?
I have little doubt that Sardar likely paid too dear a price for it when he started buying, as his average cost is approximately where it is trading today. But I also have little doubt that he’s done a heck of a job turning the business around. Same store sales increased by 14.4% at company owned stores and 7.6% at franchised restaurants. As a percentage of sales, both cost of sales and G&A were down. Owner earnings (loosely defined as CFO – Capex, but modified for one time items) came in around $12m, up substantially from last year (after backing out one time items that juiced last year’s number, and including more capex than last year, which is a positive sign).
Using simplistic, back of the envelop math get me a fair value for SNS shares around $360 per share. I arrive at this by annualizing the owner earnings number (gives about $48m in FCF), applying a 10x multiple ($480m), adding in cash, investments, and assets held for sale ($62.2m, $9.2m, $13m), subtracting debt ($18.5m), which yield about $515m in market value. Dividing by the 1.4m shares outstanding and you get approximately $360 per share.
Disclosure: Long SNS, BRK.b, WEST.
