Beaver Creek has now closed for the season. It wasn’t a great snow year, only about 70% of normal snowfall, but we did ok overall.

This amazing cartoon was in the  Chicago Tribune in 1934. Look carefully at the plan of action.  Remember the adage, “Those who do not remember the past are doomed to repeat it” ..

Copyright 2010, Ned Grace Photography

I just launched a website yesterday for Ned Grace Photography www.nedgrace.com

You’ll find lots of my favorite New Hampshire photos; sunsets, sunrises, loons, and vintage wooden boats. You can buy prints or canvases, mugs or mousepads right on the site.

Hope that you enjoy it!

O’Charley’s has been on my radar screen for quite awhile as a beaten down restaurant stock offering seeming real value. However, only recently have I been comfortable with the likelihood of real positive catalysts on the horizon that can turn around the downward spiral that the this Company has been in. There are 235 company-owned O’Charley’s, 116 company-owned Ninety Nine restaurants, and 11 company-owned Stoney River steakhouses for a total of 362 company owned restaurants. There are also 10 franchised O’Charley’s.

Let’s look at a very quick analysis of the value as of today:
Company owned Units: 362
Shares Outstanding: 21,681,919 shares as of 8/6/10
Market Capitalization: $130M (@ $6 stock price)
Long Term Debt: $117
Total Enterprise Value: $247M

Real Estate Owned : According to Raymond James analyst, Bryan Elliot there was an appraisal done of the 100 units REO(real estate owned) early this year that showed a value of almost $200M, which is about $4 a share after the long term debt is paid. But let’s just be real conservative and give it a value of $150M which would more than wipe out the debt. So then take the Enterprise Value of $247 and subtract $150M, which leaves us at $97M for 362 company owned units. So we get to a market value per unit of an eye-popping $268,000…….WOW….now, that is some serious value. The cost to build and equip a unit today on average on leased land is likely between $1.5 and $2M. Free cash flow yield for 2010 is projected to be 20% according to RJ’s Elliot. Also by the way, EV/EBITDA is 4x 2010 EBITDA, and 5x 2010 FCF.

Now for the cataysts:

1. Phil Hickey, a friend and former remarkable value builder at RARE Hospitality(took over RARE at less than$200M market cap and sold to Darden for $1.3B) is the Chairman and Acting CEO today. He just filed with the SEC that he just personally purchased 20,000 shares this week at $5.46. The Company with Phil as the lead has just hired David Head to begin as CEO on September 1. Read the release by clicking here . Phil is a very smart operator and I have faith that Phil truly believes that David Head has the horsepower to succeed in a CHUX turnaround. Phil is staying very involved too which is important.

2. Private equity guys are actively looking for bargains in the restaurant space. I have received more calls that ever before with regard to any  ideas I might have. This situation is just too cheap for a smart PE firm to ignore. Also a PE firm could do a NNN transaction on the REO, so out of pocket would be quite nominal.

I would be far more wary if Phil wasn’t the Chairman, but he is! Phil is one skilled class act, so I am betting big on him and his pick, David Head to lead a multi-year turnaround of the company, regardless of whether a PE firm  picks it off.

For full disclosure, I own both the common stock and the 2013 bonds of O’Charley’s Inc.

Risks:

Plenty….after all, this is a poor performing company in the casual dining restaurant business in a very soft economy.

Winner in the Professional flight - J.B Holmes.

Winner in the Amateur flight – Charlie Grace