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Seaboard Trading at a Discount to NAV

GuruFocus.com

- By Holmes Osborne, CFA

Seaboard (SEB) is global commodities/energy/shipping company that trades at approximately a 23% discount to net asset value. The shares have been on a tear for years and currently trade at $3,275 a share. This Kansas based company gets over half of its sales in emerging markets.

There are 1,170,550 shares, the shares are trading at $3,275, and the market cap is $3.833 billion. Of its sales, 37% of sales are derived in Caribbean/Central and South America, 28% Africa, 20% U.S., 6% Pacific, 1.8% Eastern Mediterranean and 1.2% Europe. This is based upon the final destination of the product. So if a hog is raised and butchered in the U.S. but ends up in the Dominican, it counts as a sale in the Caribbean.


Revenues were $5.594 billion in 2015, $6.473 billion in 2014 and $6.670 billion in 2013. Free cash flow is pretty decent for a company that has so many hard assets like mills, ships and farms. Free cash was $277 million in 2015, $253 million in 2014 and a $25 million loss in 2013.

For the first six months of 2016, sales were down to $2.676 billion from $2.88 billion in 2015. Cash and short term investments were a whopping $1.294 billion. Accounts receivable are $414 million and the receivable from Butterball is $197 million. Short-term debt is $117 million, accounts payable $158 million and long-term debt $507 million. Free cash flow was $150 million. Another $33 million in 2016 and $73 million in 2017 are expected to be invested in a pork plant in Sioux City, Iowa.

Seaboard owns a 52.5% interest in the famous Butterball Turkey. Seaboard has also loaned money to Butterball. Butterball produced $776 million in sales for the first half of 2016. We are going to make a comparison to Tyson Foods (NYSE:TYN), which trades at a price to sales ratio of 0.75. So we'll value Butterball at $1.164 billion.

The Pork Segment is the third largest producer of pork in the U.S. and fourth largest processor. It produced $687 for the first six months in 2016. Pilgrim's Pride (PPC) and Sanderson Farms (SAFM) trade at about 0.75 times sales like Tyson. Though they are poultry, I'll use them as benchmarks. So we'll value this division at $1.030 billion.

The Commodity/Trading/Milling Division produced $1.416 billion for the first six months of 2016. This division is spread out all over the world. There are 16 flour mills in Africa and South America. Nine feed manufacturing countries in Africa and South America. Five maze milling countries in Africa and 17 trading offices around the world. Four poultry/pork producing countries in Africa and South America. Bakeries in four countries in Africa/South America. Grain terminals in Australia/Africa/South America. A rice milling operation in South America. One pulse processor in North America. Four oilseed crushing operations in Africa/Europe/South America. Four pasta and biscuit producing countries in Africa and South America. I'll compare this division to Bunge (BG), which trades at a price to sale ratio of 0.22. We'll put a valuation on this division of $623 million.

The Marine Division produced $459 million for the first six months of 2016. This division has 30 vessels with 60,000 containers, operates a 90 acre terminal at the Port of Miami and operates a 62 acre terminal at the Port of Houston. Moller Maersk (AMKBY) trades at 0.9 sales. Mind you, Maersk also has oil but it is a decent comparison. We'll value Marine at $826 million.

The Sugar Division produced $69 million in the first six months of 2016. The Argentinian sugar division sells retail sugar, distills alcohol and operates a 51-megawatt plant. Sugar prices are doing pretty well and are trading at 20 cents a pound. I'm going to compare this to Rogers Sugar (RGI.TO) which trades at about one times sales. I'll put $140 million.

The last division is Power, which produced $36 million for the first half of 2016. Power operates through the Transcontinental Capital Corporation, which generates 178 megawatts of electricity on barges in the Dominican Republic. It also owns a three kilometer pipeline that supplies natural gas to the barges. This is a tougher one to value. Number one, it is on a barge. Number two, it is in the Dominican. Southern Power is buying two 720 megawatt plants in Minnesota for $395.5 million. I'm going to assign a value of half a million for each megawatt and come to $89 million. It is a very rough calculation.

So the value of all five companies, plus cash and receivables, minus debt, I come to almost $5 billion ($4.995). So if the market cap is $3.833 billion, it is trading at a discount to net asset value by 23%. That's not a bad discount. The stock is a recent addition to Third Avenue Value International (TAVIX).

I must admit, it is a very rough, back of the envelope calculation. You could spend hours finding better comparisons and searching emerging market M&A deals but this is what I've come up with. It is a well-run company selling at a discount to NAV--most of us can agree on that.

Of course, you as the shareholder are probably going to have a tough time getting this value, as 77% of the company is held by the founding family and insiders. There is no dividend. It is like Berkshire Hathaway (BRK.A, BRK.B) in that regards--closely held and no dividend. The stock was trading at only a few hundred dollars a share just a decade ago. It is probably not a bad value. Imagine owning a company headquartered in Kansas that gets over half its revenues in emerging markets and trades at a 23% discount to NAV? Not a bad deal.

Disclosure: We do not own shares of the companies listed.

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