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Valuing Biglari Holdings


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My take:


The way to value BH is by taking into account three components.


1. Operating cash generation from restaurant business

2. Investments

3. Subtract the incentive compensation part paid to the Chairman


Let us value BH based on these three components:


Cash generation by SnS and West:


The SnS brand sales growth is leveling off and Western Sizzling is going down. The top line growth went up by 3.5% and operating earnings by 10%; for the quarter both SNS amd Western Sizzling had less operating profit.


Earning before income tax was 29 million for the first forty weeks. Normalizing to 52 weeks gives a value of 37.7 million.



Investments totaled 117 million at the end of Q2. Most likely the investments have dropped since Q2 after the market adjusted. The BH group made money with FMMH.PK but the market value of CBRL has dropped since then. Anyway, we will leave it as is for the sake of this analysis.


Adjustment for chairman's compensation

Shareholders equity went up by 10% from Sept of last year, we can assume it will be up by 12% for the year. The chairman will take 1.5% of the addition in book value over 5%. This brings chairmans compensation to ~4 million.




At the low end, we will pay 6 multiple for the earnings before income tax as the earnings are flat or declining for the restaurant business. This in addition to the investments and subtracting chairman's compensation gives us a valuation of ~340 million.


At the high end, we will pay 8 multiple for the earnings before income tax. This in addition to the investments and subtracting the chairman's compensation gives us a valuation of ~420 million.


Current Price

Using the treasury stock, we get a valuation of 580 million. Treasury stock is stock held by the various partnerships that Biglari runs under the BH umbrella. The treasury stock is used when voting for the chairman's causes but not used in calculating the EPS figure. Since the treasury shares are held in a partnership account, redeeming the partnership can cause the shares to be sold. Also, these stocks can't be considered as retired - so a prudent investor should take into consideration the treasury stocks when valuing BH.


Without the treasury stock, we get a valuation of 450 million with a share price of $340/share.


We believe that BH is currently overvalued. Even adding back 40 million in retained earning for SnS/West and investment gains of 24 million for the next year without including chairman's compensation, we don't find BH to be a bargain even with a high multiple for earnings.



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