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Strategies & Market Trends : Value Investing

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To: Paul Senior who wrote (44082)	8/25/2011 5:01:10 PM
From: E_K_S	of 78703

Re: Seaboard Corp. (SEB) Hi Paul - I am still making my way through their latest annual 10K. I was trying to see how their different divisions have performed over the last few years and in particular was seeing if any one division accounted for extra ordinary profits (from historical years). A few items caught my attention and I have held off on starting a position. First, they paid an extra ordinary one time dividend of $6.00/share and management stated that no other extra dividend would be made until after 2012. No big deal but no rush for me to enter if it is dividends I want. For SEB it's small. Second, they were planning on some significant 2011-2012 Capex investments in their shipping division. I am not interested in buying another shipping company and their shipping unit makes up a large portion of the company (and use of funds) perhaps 30%. The new Ship financing for 2012 was a pretty big deal and I needed to look into that before I felt comfortable investing. I really like their pork and Turkey operations. In fact, they have built a state of the art bio diesel plant that takes the effluent from the pig operation as input for the bio diesel plant. I believe this is at their Colorado facility and is a test bed for future bio diesel plants at their other feed stock operations. Don't know what the capital costs will be and if they will have sufficient funds to finance these plants from cash flow. They recently invested $150M in the privately owned ButterBall Turkey operation. I think it was for a 50% ownership interest. The company uses very little debt to expand their operation(s) and do have lines of credit but are short term in nature. The new ship financing (which needs to be done) is a big deal IMO. I guess it could be looked at as a positive since interest rates are historically low and probably a good time to look at putting the division into a debt leveraged position. The shipping operation is integrated w/ their milling facilities and up to 50% of their shipping revenues are from their own internal transport requirements. Their 10K is very long (over 50 pages w/ no pictures) and I may have made it through the first 15 pages. I like everything I see so far except for the size and capital impairments needs of their shipping arm. However, it looks like it plays an integral part in their world wide milling and sugar cane operations. So, their shipping division helps build value in these other low margin high volume operations. Other food for thought: SEB sold all of their domestic (U.S.) milling facilities to privately owned Cargill in the 1980's. This was where the family (the grandfather and father) originally built the business. In 1991, SEB started a very successful salmon & shrimp growing operation which was later sold to Marine Harvest in the late 1990's. The company is very successful in growing their milling and food businesses world wide. They recently invested in a fairly large sugar cane milling facility in South America. They are building a very profitable integrated Pork business and working at adding Turkey production too. Like you stated, there is and has been a growing increase in BV but when they sell an operation (like the fish business) and buy into another (like a new mill operation or Turkey business), BV could change substantially depending on how they do the accounting. Finally, because SEB has so few shares 1.2M, the stock is thinly traded and probably is one that s/b held for 5 years or more to realize the long term value. This looks like a perfect Buffet company as it is still family operated (the son is CEO) and continues to grow it's core operations. EKS

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