Complete Growth Investor

Steak n Shake: Watching and Waiting as Biglari Names Himself CEO

ULH,

You're right on with FRN margin debt. The investment was successful because he bought at a sufficiently low price. That's value investing. Often times if you buy at the right price, a nice franchise (Friendly' is a great ice cream franchise in the Northeast, where I live) will be bought cheaply by strategic and/or financial buyers. It's not "luck." Good decision making often leads to good results. Who are you to say what would have happened had FRN not received a bid?

WEST does indeed have operational management, the fella is named Bob Moore and he is the CEO of Western Sizzlin Franchise Corp, former CEO of Whataburger.

Since Biglari has gotten to WEST, he has pared down debt, sold off underperforming restaurant locations, created a solid ROIC business in the franchising arena, entered into an enourmously successful joint venture, made a successful stock investment in FRN, and turned a weak corporation into one run for cash flow maximization and the shareholders. Remember that no shareholder will lose more than he if WEST fails, so there is nothing in it for him to talk without results.

Why aren't institutions interested? Who could buy up at $41mm company? WEST is a micro cap. Let's say you wanted to put 10% of your assets in WEST, a pretty large position for any fund. At maximum, you could probably gobble up 10% of WEST, considering the public float. Let's even say you could get 15%. 15% of $41mm is a whopping $6.15mm. So if you put $6.15 of your $61.5mm in assets in WEST. Say you only can put 5% in WEST. That's a $123mm fund. What institutions are running $60-$120mm portfolios? WEST can't even make an impact on any reasonable portfolio. 15% is 412k shares. At a few thousand shares trading in total, every day, it would take you a year to accumulate that position without bidding the price all the way up. That's why the institutions aren't interested.

Whoever Sardar's "groupies" are, they've done pretty darn well so far.

If you held WEST since Biglari has taken over, you would have nearly doubled your investment by now; adjusted for splits, Biglari took over in 2005 between 7 and 8 per share. It is an extremely thinly traded stock to this day.

So his job isn't to "get the stock moving." He's also not "running a restaurant" (in the case of SNS, only out of necessity until the President is hired, and Bob Moore runs the restaurant operation at WEST, before that it was Jim Verney).

His job is to make capital decisions that benefit shareholders. Everything outside of SNS has worked out great. It remains to be seen whether SNS will work out, so in the end the results will lie where they may.

Steak n Shake: Watching and Waiting as Biglari Names Himself CEO

If Sardar is successful in his plan with SNS, you won't be complaining, I promise. If he really cuts costs, stabilizes revenue, and generates the free cash flow SNS is capable of, the stock price will nearly triple from here.

On the proxy fee, that's going to WEST remember, mostly. It's not going right into Sardar's pockets. Without those costs, though, SNS would still be stuck in the terrible situation its been in for years. 500k is well worth it for us, and as WEST shareholder you will benefit from that.

On your last comment, yes even Biglari admitted he bought a bit too high with SNS, and value deteriorated. However, I still believe strongly that SNS is worth far more than its current price, so it should end up a decent but not great investment, depending on what Biglari can achieve. Besides being early on SNS, his capital allocation decisions have worked out very, very well. I wouldn't be so quick to throw his decision making ability off the bus, yet.

If you're not comfortable with his capital allocation decisions, you really should not own WEST. If you believe that cash flow will be distributed, I would sell the stock, because you can pretty much take it to the bank that Biglari will take what ever proceeds come out of SNS and re-invest in another opportunity.

Buying 'Em Back at Western Sizzlin'

Hi,

I'll point you to a previous post I made on WEST, where I outline my thoughts on the entire company and why it's underpriced.

www.circleofcompetence...