Bridgford Foods Corp. (BRID)

A Ted Weschler-Dillard's-inspired investment idea

Bridgford Food Corporation manufactures and distributes an extensive line of frozen foods and snacks throughout the United States, from bread rolls and sandwiches to beef jerky and other meats. While their business is a boring one, it is also fairly predictable with respect to recurring revenues (and particularly high product ratings on Amazon), with the only major worry being input costs (like the raw material costs for meats and flour), which has been a drag on the company's margins for the past few years. Despite the increased input costs, Bridgford remains dedicated to increasing topline growth and has seen record revenue recently, with a revenue CAGR of 7.6% over the last 10 years. 

While their business looks fine, in this situation, it is much more of a safety blanket than the reason for the investment. Upon looking further into Bridgford's statement, they appear to be selling far below adjusted book value, and their balance sheet is the main driver behind this investment. For starters, Bridgford has very little debt, and their at-cost book value per share is slightly above $12. This is where it starts to get interesting. Looking further into their assets, a chunk of their assets are in real estate, currently held at just over $70 million on the balance sheet. However, when you look further into their real estate, it becomes apparent that the true value of the real estate is much higher. The company recently sold a building in Chicago, which was 156,000 square feet and 1.5 acres, for $60 million. That amount to $2600/square foot, and $40 million/acre. The company currently has 462,200 square feet of buildings and real estate (in Chicago, Dallas, North Carolina, and Anaheim) in their portfolio after the sale, or 29.5 acres. Assuming the value of that real estate is, conservatively, $500/square foot (less than 1/5 of recent sale), the value would be about $300 million, and assuming it sells for $10 million/acre (1/4 of recent sale) it would be worth roughly $230 million. Taking the lesser of these two numbers, the true BVPS for Bridgford is closer to $30. While there are risks that make that unlikely (which I will discuss), even if only a small portion is realized, it would be a great gain with little risk due to the value and nature of the assets.

Additionally, the company has no off-balance sheet items to worry about, no dilutive securities, very little short interest, and incredibly high insider ownership of 80% mostly by the Bridgford family - this can also be viewed as a risk. While management (the family) is incentivized to increase the share price, they may have other motivations, and this may lead to potential governance issues as a "controlled company". However, the family doesn't appear to be taking much advantage of shareholders and has been quite fair. While comps in the industry have generally doled out salaries to executives north of $1 million, the all-in compensation for family members in the business after bonuses all range between $150-600k, which is encouraging. Furthermore, the majority of the companies' sales (>50%) are concentrated between Walmart and Dollar General. It is slightly worrisome, however, there is no reason to believe either company will reduce purchases, as revenues continue to hit record levels for the company. Finally, while comps appeared to have similar gross margins, the comps were better at converting those gross margins into net and FCF margins, so Bridgford would do well to focus their efforts in those areas, and this would simply provide even more benefit on top of what is already an obviously undervalued stock. The final risk, and likely most important, is that this is a thinly traded stock despite a market cap of ~$125 million (because of the 80% insider ownership) so it may take time to realize the net asset value here. At first glance, these risks don't outweigh the benefit of a grossly undervalued stock on a net asset value basis, which is also showing great top-line growth in a stable industry with stable customers, coming out of a downturn that was mostly due to high input costs that are now going in the other direction. If the last fixed asset sale is any indication, these shares are quite attractive on a risk-adjusted basis.

This is a company I initially took note of (and made a small investment in) back in December, and continue to do research. It really all boils down to that hidden gem of real estate, and with a long enough holding period that should eventually be valued appropriately, but how? Does the family tender outstanding shares and go private? Do they continue to sell off real estate and hoard cash? Time will tell, but I will continue to dig on this one, and it looks promising.