Monday, August 20, 2012

Why I Own SEB

The other day I saw an article about Warren Buffett. In it he discusses how the investing world favors the little guy. For Berkshire Hathaway's size, he says there are only about 200 companies that he can meaningfully invest in.  But for a small investor, investing in small caps can yield much higher returns.  This idea is nothing new. But he really startled me when he said he can guarantee a 50% return on a million dollar portfolio. Now I can picture him starting over with a million dollar and easily getting a 20-30% return, but come on Mr. Buffett, 50%? I firmly believe Buffett is a person of integrity not prone to empty boasts, and I could only wish I can invest like he does, but I cannot imagine how he can return 50%.

In the article, Buffett tells where he has found bargain stocks in the past and where he can find them today. He gives an example of looking through a list of Korean stocks in 2005 and finding many bargains. I finished the article with a little better sense of how he can quickly scans a list of stocks and find bargains. It is mostly earnings, cash flow and tangible book value. Gosh I wish I could do that!  He does say you have to look away form the beaten track.  I am already starting to look on the internet, for example here is a website I found for all traded Korean companies. It gives the data that would help me emulate Buffett, which is a concise description of the company and their financials.  But I don't know of a free automatic screener of all international stocks. I suspect it is still best to manually look at the stocks one by one.

In the whole I like to stick with large companies that are well covered. The only exception that could fit the above the aforementioned Buffett criteria is Seaboard Corp. (SEB).

SEB is a diversified conglomerate. Their biggest business line is meat production (primarily pork). Their other business lines include power generation, trading of agricultural products, container shipping, sugar production and milling.  This is a company that is easy to analyze, their financial reports are barebones and straightforward.  I'll summarize their trailing twelve month numbers:

- Recent share price: $2257
- Working capital per share: $964
- Tangible equity per share: $1766
- Retained earnings per share: $1958
- TTM earnings: $204 for a P/E of 11
- Dividends: negligible

Seaboard also has a good growth rate.  The chart below shows their earnings and free cash flow going back 10 years.  The FCF has been less than their earnings because they have use cash flow from operations to fund growth.  So, they have little debt.  They also actively acquire companies to support their growth.  They buy back their shares but not a lot.  All these facts along with their strong balance sheet shows shrewd money management.

The arguments against owning this company is that their earnings can be very cyclical and their pork business margins can be thin or negative. Also, the company was founded by the Bresky family back in 1918 and the Bresky family still owns 75% today.  The Bresky family doesn't bother to give guidance to analysts.  So it is no surprise no one covers this stock.

So I imagine several conservative exit scenarios for SEB.  I assume the Bresky family keeps chugging away growing and generating cash. The Bresky family could later take the company private. Or they can easily distribute $1000 per share without affecting the business.  The resulting business should get a reasonable PE multiple of 10.  That gives a current buyout value of about $3000.

I do admit such concentrated control worries me. The Bresky family may not act in the minority shareholder's interest, or something worse such as deceit in the books.  [1] KPMG is the SEB auditor for the last 10 years.  But, in the end I think I worry mainly because there is little SEB coverage in the media. So, in the end I am comfortable with owning SEB.

1. I have NOT heard of any accusations of any significant impropriety regarding SEB

As a follow up to a previous post titled "What is My Net Worth?", I got a reader's feedback and decided to take it down. Seems like it may not be necessary, people don't need to know what I am worth and I like it better that way. I will keep discussing my stock holdings, but from now in terms of percentage of my net worth.  In the end, I just want to do whatever to bring the readership up! For your thoughts on this, email me!  thanks!

Disclosure: SEB is my largest holding at about 11% of my portfolio.  I first owned it in 2005.



  1. I have been following/investing in SEB since the mid 90's.

    I very much doubt that there will ever be a significant payout/dividend. The only way i could see that happening is in some form of estate planning. I believe the current Mr. Bresky has many, many years ahead of him.

    The company has also stated that they will not reinitiate a dividend until the government lowers and is clear on the dividend tax rate. I strongly suspect management is NOT a fan of the current administration.

    I also suspect that they company will continue on much as they have for the last 100 years or so.

    Here in Houston, they are scaling up their operations at the Port of Houston. I see many, MANY Seaboard shipping containers on trucks going hither and yon.

    SEB has a lot of shipping/freight interests.

    I am going to guess that they are going to be making SUBSTANTIAL moves in the shipping area. There is a tremendous shakeout happening with weak players who borrowed too much to buy new ships. I am going to hazard a guess that they will be forced to sell/liquidate/bankrupt.

    I am further going to guess that SEB is going to be scooping some of these ships for cheap. I will speculate that when SEB shipping can buy the ships for less than what they cost to build, they will get interested.

    This is an area where TENS of millions of dollars can be put to use. They have the financial muscle to do so. Relatively modern ships can be bought for $15M to $30M easily...

    Another area that I foresee them expanding to is back into poultry. They have relatively recently bought into Butterball Turkey. For years, SEB had significant poultry operations. I can see them moving back into if the current producers are under too much stress from rising grain prices.

    I think they could also spend a lot of capital further expanding the pork operations. Perhaps moving further up the food chain, ala "Hormel". Perhaps taking regional brand national.

    SEB could also big moves into Africa. They have had grain milling and shipping operations in Africa for decades. They start off small, usually with grain trading, then grain processing, then baking. All the while they are using their fleet of ships...

    I don't have any special insight, but I've been watching/investing in this company for almost 20 years.

    The Bresky family is supremely patient. They treat shareholders fairly, but they absolutely run the company THEIR way. They think in terms of 5+ years and decades, not months & quarters. SEB also operates from a position of strength and they go in when other operators are weak.

    Who knows? Maybe 10 years from now SEB will be trading for $12 to $15k a share?

    We'll find out.

  2. Thanks for the comments, what you say is clearly possible, overall I just like SEB because it is a big play on food, that's got to be big in the coming decades.