If you own a house, it’s very likely you’ve purchased title insurance from Fidelity National Financial(FNF). After all, the company writes more policies than any other. Increasingly though, it’s likely that you’ve eaten at one of the company’s restaurants. Yes, you read that correctly. The company has been steadily acquiring restaurant assets, and will generate over $1.25 billion in revenue from its restaurant operations over the next 12 months. Now, after a bidding war, the company as reached an agreement to purchase J Alexander’s(JAX), another restaurant chain.
It’s perhaps not a complete surprise that the firm has chosen to expand in this way, given its chairman’s long experience operating restaurant chains, but it remains unconventional.
The new direction makes comparisons to Berkshire Hathaway(BRK) inevitable. Berkshire, of course, has built its portfolio of stocks and companies using float from its successful insurance businesses. Biglari Holdings(BH), whose CEO, Sardar Biglari has been almost comical in his attempts to emulate Berkshire, remains primarily in the restaurant business, despite several failed attempts to purchase insurers.
Even at its current scale, Fidelity’s restaurant business, together with some other non-insurance businesses, represents a small part of the company’s revenue, and an even smaller part of its profit. At the rate the company is acquiring new properties, that will change quickly.
The company trades at an attractive earnings multiple, has a 3% yield, and is actively buying back stock. If the restaurant strategy succeeds, investors will be amply rewarded. But ,beware- there are major risks inherent in such a drastic new direction.
Disclosure: The author holds shares in BH and BRK
If the strategy succeeds, this
- Fidelity National raises bid for J Alexander’s to $78 mln (uk.reuters.com)
- Fidelity National Financial Management Discusses Q2 2012 Results – Earnings Call Transcript (seekingalpha.com)
- UPDATE 2-Restaurant unit boosts insurer Fidelity National’s profit (uk.reuters.com)