Adding Western Sizzlin

The Fat Pitch Financials Portfolio has a new stock.  It is Western Sizzlin Corp. (WSZL). I was hoping to write about this position last weekend, but transferring Fat Pitch Financials and Value Investing News to a new server took up all of my free time last weekend. In retrospect, I should have at least found time to briefly announce this purchase.

I first placed an order for Western Sizzlin at the end of October for 2,000 shares.  It took until November 13th for the order to be filled. The average price for these shares came to $13.12.  While that order was being filled, I submitted an additional order for 3,770 shares on November 9th. That order was finally filled on November 16th at an average price of $12.95 per share.

Western Sizzlin is no mere microcap restaurant. It is being transformed into an investment vehicle by Sardar Biglari.  Mr. Biglari is both the Chairman of the Board and CEO of Western Sizzlin.  He is also operates The Lion Fund, a private investment partnership. 

A recent interview with Sardar Biglari by Emil Lee clearly shows that Mr. Biglari is a true believer in value investing.  His thoughts on the importance of capital allocation and competitive advantage are very aligned with my own. He has proven his abilities in finding value in tough situations in the restaurant industry when he successfully unlocked the value of Friendly Ice Cream (FRN) last year. I actually first learned about Mr. Biglari and Western Sizzlin when I invested the Special Situations Real Money Portfolio in a rights offering the company issued to raise capital for their Friendly’s investment.

Western Sizzlin is once again in the middle of a rights offering.  I decided to take advantage of what I believe is a temperary dip in the price of Western Sizzlin shares. Shareholders (in particular professional money managers) that received rights during the offering I believe have been selling off some shares they own to rebalance their portfolios in anticipation of receiving more shares shortly from the rights they exercised. Regardless of whether this theory is correct, I’ve determined that Western Sizzlin shares are trading at a significant discount to their intrinsic value. As more investors discover that Western Sizzlin is not your typical restaurant company, the market will likely change the metrics used to value this company.

8 thoughts on “Adding Western Sizzlin

  • November 23, 2007 at 2:16 pm

    Hi George,
    How is the company capital structure changes now with rights given?i.e. how many stocks should I count now with this rights?898,875+1,797,750 or just 1,797,750.
    I let go the chance of ownership last year(damn!)when it was around 8$ due to this rights offering(my thinking was Mr.sardar is trying to dilute the current owners impostering as buffett follower, but after reading and seeing him acting in favor of all stakeholders I proved to be dead wrong in my understanding!).
    Sanket Desai.

  • November 27, 2007 at 9:32 am

    The number of Western Sizzlin shares after the rights offering should equal the number of shares prior to the offering, 1,797,750 shares, plus the number of shares issued for the rights offering, 898,875. Therefore, the total number of shares now should be 2,696,625. I don’t believe the rights offering was extended past November 16th. Shares were to be issued in 7 to 10 days ofter the expiration of the offering, so I believe that by now the new shares have been issued. I know some brokers are slow to get shares after rights offerings so it might take a few more days for all the people that took advantage of the rights offering to receive shares. I was actually a bit surprised to see that shares of Western Sizzlin traded up in price significantly yesterday. Maybe some hedged positions (shorted shares) were covered since the offering is now over. Anyone have any other theories?

  • November 27, 2007 at 11:06 am

    thanks for the answer George! two more questions.What is the growth rate and discount rate you are assuming if you are doing DCF calculation?

  • December 2, 2007 at 4:36 pm

    George, instead of buying WSZL, why not just buy SNS?

  • December 4, 2007 at 1:55 pm

    Kevin – I chose WSZL over SNS because Western Sizzlin has the competitive advantage of top quality management that knows efficient capital allocation, Sardar Biglari. SNS has no such capability.

    If Biglari cannot effect change at SNS, I don’t wouldn’t want to remain a holder of its business but I would still be interested in WSZL. WSZL has a future beyond this particular situation.

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