Get That Bread - A Value Investing Podcast Stephen Lee & Mark

Stock Analysis 2019: A Case Study of Biglari Holdings (Tickers: BH-A, BH)


Biglari Holdings (tickers: BH-A, BH) is a conglomerate with two distinct lines of businesses: its operating units and its investment arm. The enterprise is led by Chairman and CEO, Sardar Biglari, who owns 55% of the company. Having once been attributed the titled the "Sage of San Antonio," Sardar has previously been likened to the younger version of the more famous Warren Buffett, aka the "Oracle of Omaha." With current valuations at historic lows, Biglari Holdings appears on sale for 50% off its net asset value, not including its four operating units, which include Steak n Shake, Western Sizzlin, First Guard (a property casual insurance company), and Maxim magazine. It also owns ~15% of the restaurant chain, Cracker Barrel Old Country Store (ticker: CBRL). Considering only the company's cash and the carrying value of its investments, net of total debt, Biglari Holdings as of 1Q19 end is worth approximately $392 million. This compares with its current market capitalization, as of the date of recording, of about $196 million, suggesting a possibly 100% upside to current price levels.


Is this a value opportunity? You tell me.


My purpose of this episode isn't to provide a thesis, but rather to articulate the situation and to invite you to arrive at your own conclusion. It's somewhat of a complicated situation - as value opportunities typically are - but it's nonetheless incredibly interesting, in my opinion. Part of the reason for the ambiguity is because at times there are no clear answers. No one will tell you the appropriate path forward. Yet, referencing the Aeneid, which Ben Graham so appropriately includes in the Intelligent Investor, "Through chances various, through all vicissitudes, we make our way..."


Please feel free to leave your thoughts on the company and on whether you believe this is a "value investment."


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Episode 9 - Making Sense of the Stock Market


This episode's format is slightly different. Instead of discussing particular investment ideas or financial metrics, I bring on a guest - my brother Victor - to touch on some of the underlying mechanics of the stock market and how it could make sense for certain prospective investors. Victor is a business leader of a mid-sized family apparel retail establishment. Although he did graduate from business school with a concentration in organization management and has the means to invest, he harbors certain reservations on the financial markets, which I think are shared by many people today. What exactly are investors owning when they purchase a common stock? Are stocks merely financial "paper" and represent ownership interests in name only? Isn't there an agency problem or disconnect where the interests of retail investors are largely, if not entirely, neglected by the board of directors? I try unpacking these issues and attempt to dispel some of the obscurity and misconceptions that many people may have regarding these questions, and how it all works.


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Episode 8 - Merger Arbitrage (LSC Communications): LKSD


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Financial Model: http://bit.ly/2DzOg1Q
Notes: http://bit.ly/2UYhkLj


I discuss a merger arbitrage opportunity involving acquisition candidate LSC Communications (ticker: LKSD). The business is involved with traditional and digital print, and is being acquired by competitor, Quad/Graphics Inc. (ticker: QUAD), in an all-stock transaction anticipated to completed by mid-2019 through a 1 (LKSD) for 0.625 (QUAD) exchange ratio. Given LKSD's current dividend yield of ~15%, as of the date of this recording; the dramatic decline in LKSD's valuation following its merger announcement in October 2018; and the implied upside in the merger arbitrage over the next 2-4 months it appears that no matter the circumstance that unfolds (1. merger is canceled, 2. merger is delayed, 3. merger is completed) LKSD shareholders at current price levels are walking away with a compelling result. Borrowing the words from value investor Mohnish Pabrai, it seems that in this instance "heads you win, and tails you don't lose much" (if any).


I typically shy away from merger arbitrage given the inherent risks that are usually involved, but this situation appears unique in my eyes. For the unacquainted, I certainly recommend you to put your thinking-caps on and join me through this analytical walk - even if parts may seem a little complicated.


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Stock Analysis 2019 - NL Industries


A Substantial Discount to Net Asset Value - An Anomaly


For the Video Version of this Episode Check out our Youtube. http://bit.ly/2C4xqHP


Financial Model Link: http://bit.ly/2UEEzK7


Episode Notes Link: http://bit.ly/2GhmPKR


I discuss the substantial disconnect between the market price of NL Industries (ticker: NL) versus its net asset value (NAV), revealing at first glance what appears to be an asymmetric risk-reward opportunity. With the company's NAV estimated to be within the range of approximately $494 million to $605 million vs. NL' s market capitalization of $190 million, as of the date of this recording, this could be an interesting opportunity for the diversified value investor. The company's three assets are publicly traded companies: (1) Kronos Worldwide Inc. (ticker: KRO), (2) CompX Internatinoal (ticker: CIX), and (3) Vahli Inc. (ticker: VHI).


One last note regarding NL, which I forgot to discuss in the video is that given it's relatively low valuation compared to its publicly traded assets, the prospective investor in NL shares is actually buying earnings for approximately 3.8x 2018 adjusted earnings whereas KRO's 2018 P/E is ~8.4x and CIX's P/E is ~12.3x (as of the date of this recording). So, the investor is buying the earnings of a publicly traded company at a cheaper price by going through the parent vs. buying directly. You can see more of this in the provided financial model. The link is below.


HOWEVER, as an investor you must conduct your own research! I discuss the importance of why this is absolutely critical in this episode as well. There are real risks with any opportunity and they must be address. I discuss a number of major risks in this video. Please keep in mind that this content is purely for educational purposes. I believe it unwise to make any investment decision without first accessing the "primary sources" (i.e. 10-Q, 10-K, earnings releases, etc.). You can access them on the SEC website.


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Episode 6 - Stock Valuation: Stock Valuation: Understanding Book Value for Beginners


A Video Version of this episode: http://bit.ly/2C4xqHP


1) Book value IS NOT market value!!! Book value, or equity, is an accounting construct that at times diverges from economic reality. (So just because a company is trading below book value doesn't mean it's necessarily cheap; and vice versa, not all stocks trading above 1x book value are expensive).


2) Here's the computation for P/B:
(method 1) = Market capitalization / equity
(method 2) = price per share / book value per share.


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Episode 5 - Stock Valuation: EV to EBITDA & EV to EBIT

Please check out our Youtube Page for a supplementary video on Episode 5 http://bit.ly/2FEn57t


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