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Hidden Value In SuperValu

Jul. 17, 2018 4:12 AM ETSUPERVALU Inc. (SVU) Stock23 Comments
Kabir Mathur profile picture
Kabir Mathur


  • SuperValu’s current market capitalization reflects only a fraction of its sum-of-the-parts value, indicating a strong asymmetric risk/reward opportunity.
  • Catalysts include further real estate monetization, upcoming debt reductions, an activist campaign, and a review of strategic alternatives that may lead to an outright sale of the Company.
  • Expect 1-2 years on the high end for realization of these catalysts, with a potential return of 21-36 percent based on the last closing price.

Executive Summary

The name “SuperValu Inc.” (NYSE:SVU) is an apt one to describe this opportunity from a value investing perspective. A sum-of-the-parts valuation indicates a tremendous amount of hidden value in the Company’s owned real estate portfolio and retail segment. The Company is undertaking a monetization strategy of its owned real estate through a series of sales and sale-leaseback transactions, with the proceeds earmarked to pay down debt. Identifiable catalysts on the horizon include an upcoming reorganization of the Company into a holding company, further monetization of owned real estate, and the completion of an ongoing review of strategic alternatives. It’s also important to note that shareholder interests are being protected by an activist investor by the name of Blackwells Capital, whose critical yet constructive communications with management and shareholders have arguably spurred insiders to take urgent steps towards highlighting shareholder value. Our analysis below puts a conservative estimate of price appreciation for SVU stock between 21 and 36 percent over the next 12-24 months.

Background/Business Overview

Headquartered in Eden Prairie, Minnesota, SuperValu Inc. (“SuperValu”) is a U.S. grocer with two primary business segments:

  • Wholesale (~78 percent of FY2018 net sales): With 28 distribution centers (DCs), the wholesale business serves as primary grocery supplier to ~3,323 stores, with customers including independent retailers, regional and national chains, military commissaries, as well as SuperValu’s own corporate-owned retail stores. EBITDA has continued to show positive growth over the years.
  • Retail (~21 percent of FY2018 net sales): The retail segment is comprised of 114 stores primarily under the grocery banners of Cub Foods, Shoppers Food & Pharmacy, and Hornbacher’s. The retail segment has struggled with declining performance in sales and EBITDA, and has been a source of negative operating income over the last two fiscal years.

Note that about 1 percent of net

This article was written by

Kabir Mathur profile picture
As principal of Tor View Capital, LLC I focus my research on deep value and special situation investment opportunities. My professional background is in business valuation of private companies, and I have carried that experience over to my public stock market investing endeavors. It seems to me that the biggest edge for the smaller investor is in exploring under-followed areas of the market, so that is where I tend to focus my efforts. My hope is that by engaging with fellow investors on Seeking Alpha I can contribute to the discussion and learn from the community in the process.

Analyst’s Disclosure: I am/we are long SVU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (23)

Saved again !
Kabir Mathur profile picture
Great news - SVU announced a takeover offer at a substantial premium to its market price. I hope you were all able to benefit from this one, I'm closing out the position.
I'm gone and not waiting for the extra cents on the dollar.

The deal could fall thru and my insurance is taking the cash
and running which I did earlier !
You called this one !
Mark Krieger profile picture
congrats everybody..it is a good day to own SVU, but not so good to be stuck in a short position
west281356 profile picture
nice call
Mark Krieger profile picture

Pivotal Research reiterates buy rating and $26 target price
Mark Krieger profile picture
I'm whole again!

Mark Krieger profile picture
buy today's dip- higher highs and higher lows and a very tiny chance that SVU's current Board will survive the proxy battle
Long SVU 👍
24 Jul. 2018
Long SVU once the current BOD leaves, blackwells new nominees will serve the company much better
I think SVU will go up with either the current BOD or the blackwell's proposed BOD. I just think it will go up faster with a new BOD so I voted the green proxy. GLTA.
Sears was once thought to have valuable retail real estate too. Just ask the funds that thought so.
Although your analysis is interesting it has little value. What's important is the companies ability to generate free cash flow and its potential to increase that flow.
Mark Krieger profile picture
wonderful analysis! thank you
Kabir Mathur profile picture
@Mark Krieger - Thank you!
The Benjamin Fund profile picture
I agree with Kirk.

Also, this analysis ignores the off balance sheet pension liabilities SVU has with the multi-employer plans. They’re recognizing expense each year based on contributions but there’s no liability on the balance sheet to reflect the underfunding status - and future catch up payments - of these plans. Also, their own pension plan is significantly underfunded even after assuming rather aggressive future returns.
Kabir Mathur profile picture
@The Benjamin Fund - Thanks for pointing that out, those are valid points. The analysis above uses broad strokes and makes no adjustments for the pension deficit or any contingent liabilities specifically. Instead, the back of the envelope calculations using conservative point estimates (as a margin of safety) serve to demonstrate the arguably depressed valuation of SVU assigned by the market.
Kabir Mathur profile picture
@The Benjamin Fund - Thanks for pointing that out, those are valid points. The analysis above uses broad strokes and makes no adjustments for the pension deficit or any contingent liabilities specifically. Instead, the back of the envelope calculations using conservative point estimates (as a margin of safety) serve to demonstrate the arguably depressed valuation of SVU assigned by the market.
Kirk Spano profile picture
I’ve done the same analysis at my firm and service. My original numbers were in line with yours. However after I saw what they got on the ceiling lease back of the real estate and considering that the retail operations are worth nearly nothing, then adding back new rents and including flat margins and essential failure of support services, we gave up our position after a small gain. I think SVU is probably worth a few more dollars, but is not worth the execution and strategic risk. I think an income investor can sell cash secured puts when there is a market, otherwise I am ignoring the Supervalu.
Kabir Mathur profile picture
@Kirk Spano - Thank you for your input
I'm just curious, and do not hold any of this stock. Do you see this as a black swan type of event - or are you somewhat second guessing your analysis of this company ? It seems some folks made some great money, just ten days after your post ? Again, I'm a very small-time investor, but I'm curious . . . how the pro's look at it ?
Kirk Spano profile picture
"black swan type of event???" I think you need to look up the definition of that.

we owned SVU a while back, made about 30-40% on what turned out to be a trade. A few subscribers and clients held onto a few calls, so those just did well. I predicted the buyout, which was a big reason we invested. However, as the low buyout price shows, there wasn't much value in the stock. Remember, there was a 1:7 reverse split just a while back and the lease backs were not great, that probably propelled the deal to get done because they knew they weren't as valuable as some of us though originally. Remember, the CFO bailed to go do Kohl's, he probably knew.
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