Monday, December 21, 2009

Biglari's $300 Steak Burger?


No the steakburgers are not really $300, actually you can get a double steakburger with fries for a very reasonable $4. The $300 price tag I'm referring to is the newly 1-20 reverse stock split. Starting Monday the 21st of December 2009 Steak n Shake will trade in the $250-$300 per share range. Steak n Shake just released their full year and fourth quarter results for 2009 earlier in the week which you can find here. In his annual letter to share holders Biglari points out that he will focus Steak n Shakes future growth through the purchase of other equities other than just the restaurant business. In a nut shell this is no longer just a hamburger chain but a investment holding company. As I mentioned in my last update that Steak n Shake ($SNS) has taken a 10% stake in Freemont Michigan Insuracorp ($FMMH) a small insurance company located in the town of Freemont, Michagan. Biglari will look for undervalued companies which he will purchase through his new investment vehicle Steak n Shake. As stated in his annual shareholder letter, they "aim to grow long-term cash flows, not reported earnings. Their view on reported earnings is that they are not real until converted to cash." Wall Street always focuses on earnings and this is what you often see in the media. In the long run a company must earn money however what should be focused on is the free cash flow. Earnings can be manipulated and often can show a distorted picture while cash flow is more transparent. It will be interesting to see the transformation take place over the coming quarters and next few years.

Wednesday, December 2, 2009

Markel Corps Private Acquisitions


Markel Corp. (MKL)
which is a property and casualty insurance company that specializes in specialty insurance products such as wind and earthquake exposed commercial properties, high valued motorcycles, personal, watercrafts, even horse related risks is becoming more and more like Berkshire Hathaway(BRKA, BRKB) as time passes on. Yesterday Markel announced that it acquired Baltimore-based Ellicott Dredge Enterprises LLC which is a 124-year old maker of Dredges. Markel first stepped into the private equity arena almost 5 years ago buying a major stake in a bakery manufacturer. This is a practice that Warrren Buffett has been doing for over 40 years and is quite successful at it. By buying into private concerns Markel is able to get 80-100% of these smaller companies unlike their passive investments in larger holdings such as General Elecrtic(GE), Wal-Mart (WMT), and Carmax (KMX) . By buying majority stakes of these smaller companies Gayner is counting on double digit returns. As you see by the list below these are simple businesses to understand. It seems Tom Gayner who runs the investment arm of Markel adheres to the same practices as Buffett, which is buying businesses that are simple and that have good management already intact. You will notice that their are no high-tech, fashionable companies in this group.

Private acquisitions since 2005

  • Acquires majority stake in AMF Bakery Systems- Located in Richmond Virginia is the world's leading manufacturer of quality bakery equipment for high volume bakeries since 1915.
  • Acquires Parkland Ventures- which owns and operates mobile home parks around the country.
  • Acquires 40 percent stake in First Market Bank- First Market Bank was founded and is headquartered in Richmond and mostly owned by the Ukrop family who own a chain of super markets in central Virginia. Now celebrating its twelfth anniversary, the bank has grown to more than 300 employees and has a network of 39 full-service locations (including 25 in Ukrop's stores and 14 freestanding branches). It has more than $1 billion in deposits and offers a full range of retail and commercial products including mortgage, trust and investment services. Earlier in the year First Market announced a merger with Union Bankshares Corporation. When the merger is complete the combined organization will have 97 branch locations throughout Virginia with more than $4.0 billion in assets.
  • Acquires Panel Specialist- is a leading manufacturer of panels, partitions, wall systems, casework, furniture, and countertops. Their customers include project managers, architects, and builders within five specialized divisions with annual revenues are over 30 million dollars.
  • Acquires an unspecified majority interest in Baltimore- based Ellicott Dredge Enterprises LLC- located in Baltimore Maryland has designed and manufactured over 1500 dredges, more than any other manufacturer, and has served customers in over 8- countries. They market their products through two divisions. The Ellicott Division sells pre-engineered standard dredges primarily to the marine contracting and sand and gravel markets. Ellicott Dredge is the only dredge builder which designs and builds all key components of the dredging system- from winches to pumps, from excavators to spud carriages. This concept of single responsibility lies behind Ellicott's reputation for reliable and durable dredges. Because of this approach, many Ellicott dredges are still going strong after 50 years of steady service. Ellicott also built all of the dredges used in the original construction of the Panama Canal.

Markel has over a one hundred and ten publicly traded companies totaling 1.3 billion dollars in its investment portfolio.



*Author currently long BRKB, MKL