This Thursday, a small crowd will converge on a New York City hotel conference room in order to hear the latest wisdom from one of the more controversial CEOs in the ranks of smaller names that many investors probably never have heard of. It's no Omaha Berkshire Hathaway annual meeting extravaganza, mind you, but it is one of the few annual meetings I rarely miss.
Biglari Holdings (BH) CEO Sardar Biglari no doubt will wax on for hours about his investment philosophy, the company's "successes" and at least once probably will tell the assembled group of shareholders that those who don't buy into his long-term philosophy, or like the way he runs the company, should sell their shares.
He'll answer questions for hours, which is the best thing about this meeting. Occasionally, his mentor, sidekick and board of directors Vice Chairman Phil Cooley will add his two cents, in his unique, dry-witted manner.
Biglari shareholders in my view fall into two camps. In one camp are the Biglari stalwarts who truly believe this fairly young man, age 39, could be one of the next great capital allocators. Some compare him to Warren Buffett. The other camp is comprised of longtime, somewhat disgruntled shareholders like me who believe that while Biglari is smart and may be gifted, his results have not been all that impressive. We also question his "bull in a china shop" style and compensation structure, and believe that while Biglari Holdings shares are tremendously undervalued, it is because of self-inflicted wounds. Investors at large have difficulty understanding the company, its structure, CEO compensation, small float and relatively large price per share ($430), which together produce what I've termed the "Biglari discount."
Shares should be trading much higher than current levels. The company's nearly 20% stake in casual dining restaurant chain Cracker Barrel (CBRL) is alone worth nearly $800 million, while BH's market cap stands at $900 million. That CBRL stake, a wise purchase by Biglari (although he botched efforts to get seats on the board of directors), also generated about $42 million in dividends for BH over the past year. Longer-term plans for this stake are unclear, but hopefully will be addressed to some extent on Thursday.
BH also owns the Steak 'n Shake restaurant chain, which in turn owns a significant amount of real estate. Props to Sardar Biglari for turning this chain around over the past several years; don't dare call the chain's burgers "hamburgers," though, as Biglari will correct you that they are "steak burgers."
Arguably, in owing BH at current levels, shareholders are getting much of Steak 'n Shake and Biglari Holdings' other interests (including First Guard Insurance and the Western Sizzlin Restaurant chain) for free. While I still don't quite understand the rather impulsive purchase of deeply in-the-red Maxim Magazine in 2014, it was reportedly profitable last quarter. That's another topic that no doubt will come up on Thursday.
Hope springs eternal that BH shareholders one day will reap the rewards of owning a package of undervalued assets. Don't even consider a stake in this company, however, without reading Biglari's annual letter to shareholders, legendary in their own right, understanding the company history, and perhaps hearing from both the disgruntled shareholders and true believers.