Value
It's rare to start a post with the valuation but for a company competing in a fragmented industry with no competitve advtanges, earnings decay and trading at 45x earnings I need to keep your interest.
This initial valuation is by no means meant to recommend the stock, it extreme back-of-the-envelope. I'm using $200,000 for net income, down from last year's ~275k and depreciation of $1 mil which is about in line with its trend and keeps the valaution simple. The CapEx number comes from the Chairman Letter.
Net Income $200,000
+ D & A $1,000,000
-CapEx $40,000
= Owners Earnings
$1,160,000 *13 = 15,080,000
So if Owner's Earnings is $1,160,000 next year and we give that a 13x multiple - which is less than half of restaurant Applebees - the restaurant's value is $15 million which isn't exciting when looking at WSZL's market cap of $25 million....
But when we add cash of $2.7 million and an $8.3 million investment in Friendly's we get a value for the company of $26 million, which puts it at a 7% discount currently.
Still not very exciting, but that means that we are getting all the potential of Sardar Biglari's future cash compounding ability for free.
Also this valuation does not add in any value for the potential fees earned from the new LP created by Biglari to invest the company's cash.
The letter is here and I'll post more of my reserach as soon I get it written-up.
Buenos Noches
2 comments:
To be honest this doesn't look very interesting as that just doesn't seem to be a very big discount to value. I know nothing about Biglari and in fact don't know anything about Sizzlin to be honest. If he loses money or ends up being an average performer in the future then Biglari could end up being a liability. Does this really trade at 7.4x EBITDA? (Yahoo has an LTM EBITDA number of $1.9M..I am using your MV of $25M less 2.7M cash less 8.3M friendly's investment). In any case I hope it does work out for you well but just want to give another perspective.
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