beacon equity research analyst: victor sula, phd

BEACON EQUITY RESEARCHAnalyst: Victor Sula, PhDInitial ReportOctober 22th, 2007

Santa Fe Holding Company

7125 Crossroads Blvd. Brentwood, TN 37027

Phone: (615) 661-4500 Fax: (615) 661-4511email: [email protected]

http://www.santafecattleco.com/

Company Background

Santa Fe Holding Company (OTCPK: SFHD), headquartered in Brentwood, Tennessee, is a restaurant holding company which currently owns and operates a chain of 18 Santa Fe Cattle Co. “roadhouse” steak restaurants and 1 licensed store. Its restaurants, located in Alabama, Georgia, Mississippi, Indiana, Tennessee, Kentucky and Oklahoma, are differentiated from competing roadhouse-themed chains by the high quality of the menu, which includes an exclusive blend of aged USDA Choice steaks and Chuck Wagon favorites, developed exclusively for Santa Fe Cattle Co. The menu offers a melting pot of Texas Hill Country influ-ences, from south of the border enchiladas and fajitas to hearty sausage, jalapeno corn bread, authentic flavored sauces and dressings.

Restaurant veterans Danny York and David Wachtel founded Santa Fe Cattle Co. in 1996. The Company’s Chairman/CEO, Danny York, brings over 18 years of res-taurant chain management experience to the operation. In 2003, when Mr. York

Market Data

Symbol / Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Coverage Initiated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Current Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Rating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Price Target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Outstanding Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Market Cap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52-Week Range. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

OTC BB: SFHDSep 19th, 2007

$1.90Speculative Buy

$4.7520.17M

$49.73M$0.20 - $1.90

SFHD daily 10/22/07

volume

2.0

1.9

1.8

1.7

1.6

1.5

1.4

1.3

60

40

20

0

Thou

sand

s

SepAug Oct

Analyst: Victor Sula, PhDInitial ReportOctober 22th, 2007

Santa Fe Holding Company (OTCPK: SFHD) 2

bought back ownership of the Santa Fe Cattle Company chain, only six restaurants remained operating and annual sales were only about $1.5 million per store. Within two years, he had revitalized the concept and increased average sales per restaurant to more than $2.6 million.

Under Mr. York’s guidance, another company, Restaurant Management Group, grew from eight restaurants and four different concepts to 37 restaurants generating over $100 million in annual sales. Mr. York was also a multi-unit fran-chisee of Western Sizzlin Steakhouse and participated actively in the development of the Logan’s Roadhouse concept. This chain was recently purchased by a private equity firm for over $480 million.

Investment Highlights

Business model based on differentiation and original operating concept

The Company’s business model centers on developing a network of casual dining steakhouse restaurants across the US that provide customers with quality food, exceptional service and a fun dining experience, all at a rea-sonable price.

Santa Fe has adopted a strict standard of service, convenience, atmosphere, management and, pricing to set its restaurants apart from the competi-tion. It is the only casual steakhouse restaurant chain that offers quality Southwestern fare and mid-priced steaks. Its goal is to dominate the un-derserved, $10-12 dining niche of the steakhouse restaurant segment.

Concept has proven appeal for consumers

The Company’s differentiation strategy is based on factors that have proven successful in the past and are likely to drive further expansion: (1) The family concept with an appealing atmosphere and interior design reminiscent of the Old West and featuring the signature “big ass ceiling fan”, similar to the fans found in turn-of-the-century cattle yards; (2) Quality Southwestern fare and a traditional steak menu; (3) Salsa, marinates and dressings which are made in-house from original recipes; and (4) hand-cut and aged-to-perfection steaks.

An impressive turnaround under Mr. York’s management

Veteran entrepreneurs and restaurateurs, David Wachtel and Danny York founded Santa Fe Cattle Co. in 1996. After growing the concept to 16 units, Mr. York sold his equity interest in the chain in 2000 to pursue other restaurant ventures. The unexpected death of Mr. Wachtel in 2001 led to a disruption in growth and the near demise of the chain.



After several years of struggling under different management teams, Mr. York re-purchased the remaining Santa Fe stores and rights to the concept, recipes, logo and name in May, 2003, and began to resurrect the concept. At that time, only six restaurants remained and annual sales averaged less than $1.5 million per store. Within two years and under Mr. York’s leadership, average sales increased to more than $2.6 million per store. All of these stores were restored to the original concept. The concept and the Company have been successfully tested and are poised for future expansion and accelerating growth.

Positive growth outlook

Santa Fe’s revenues increased 32.4% in 2006 to a record $21.6 million and were 286% higher than 2003 revenues. This growth reflects an increase in the chain from 6 units in 2003 to 12 units at year-end 2006 as well as higher average sales per restaurant. The Company is well-positioned to achieve its 2007 revenue goal of $33 million. In the first nine months of 2007, Santa Fe generated revenues of $24.4 million and expanded its chain to 18 locations.

By year-end 2009, Santa Fe management expects to have opened at least 44 restaurants and generate annual per store sales of approximately $3 million. Given the results already achieved under Mr. York’s leadership, we think these projections are reasonable and expect the Company to produce revenues exceeding $100 million by year-end 2009.

Our 2009 revenue target is based on sales of $2.6 million per store and 44 restaurant locations. However, according to management, Santa Fe’s annualized sales per store already exceed $2.6 million and are expected to approach $3 million by 2009.

Business model based on differentiation and original operating concept

Santa Fe’s management team has over 100 years combined experience in the restaurant business. Danny York was one of the originators of the mid-priced casual family (peanuts-on-the-floor) steak house experience. In fact, he developed the concept and was largely responsible for Santa Fe’s initial successes.

Mr. York along with David Wachtel and others, also developed the highly successful Logan’s Roadhouse chain. This chain went public in 1995 and, after numerous stock splits, was acquired by Cracker Barrel Restaurants in 1999 for a purchase price exceeding $180 million. Mr. York also served as Chief Operating Officer of another major restaurant chain company, Restaurant Management Group (RMG) in Nashville, TN.

Internal controls to monitor profitability and quickly address problem areas

The Company uses a “Weekly Sheet” to track weekly store costs. The weekly sheet is produced by the General Man-ager of each store, is compared with the sheets produced by the chain’s other General Managers, and reviewed by se-nior management during weekly meetings. Each restaurant also produces a monthly profit and loss statement which is shared among the stores. This sharing of financial results fosters friendly competition among managers; exceptional performances are rewarded with bonuses.

The management team of each restaurant consists of a General Manager, Kitchen Manager, Bar Manager and three Floor Managers. Each manager must complete an intensive 12-week, hands-on management course, and is cross-trained to handle both front- and back-of-the-house responsibilities. The management team is incentivized with a very generous bonuses system based on performance.



The average American is dining out more frequently

Consumers are spending more food dollars on dining out. The average US household spends nearly $2,500 per year on dining out, and this figure has been growing faster than inflation since 1991. According to the National Restaurant Association (NRA)1 there are more than 935,000 restaurants in the US, which generated 2006 sales of $511 billion, up 5.1% from the prior year, and are on track to generate sales exceeding $537 billion in 2007, representing 4% of US GDP.

The average American is dining out more frequently

Consumers are spending more food dollars on dining out. The average US household spends nearly $2,500 per year on dining out, and this figure has been growing faster than inflation since 1991. According to the National Restaurant Association (NRA) there are more than 935,000 restaurants in the US, which generated 2006 sales of $511 billion, up 5.1% from the prior year, and are on track to generate sales exceeding $537 billion in 2007, representing 4% of US GDP.

1 www.restaurant.org/research/ind_glance.cfm



Business Model

The Company’s business model focuses on setting Santa Fe apart from competitors by positioning it as the only steak-house restaurant chain offering quality Southwestern fare and mid-priced steaks to the underserved, $10-12 casual dining niche. This particular market niche has few competitors, low market penetration costs and enormous growth potential.

Corporate strategy

The Company differentiates its restaurants by providing:

An interesting family concept in an appealing atmosphere. The interior design of its restaurants is reminiscent of • the Old West and features Santa Fe’s signature “big ass ceiling fan”, which is modeled after the ceiling fans com-monly seen in turn-of-the-century cattle yards.

Quality Southwestern fare. The addition of Southwestern-influenced food items to the traditional steak menu has • strong appeal for customers and provided a profitable compliment to the steak menu.

All of Santa Fe’s salsa, marinates, and dressings are produced in-house from original recipes.•

All steaks are hand-cut and aged to perfection on-site. •

The Santa Fe concept was developed by Mr. York, who is one of the originators of the mid-priced casual fam-ily (peanuts-on-the-floor) steak dining experience. The profitability of each location is carefully monitored with weekly tracking of store sales by line item as well as cost monitoring. Individual restaurant managers earn bo-nuses for increasing sales and reducing costs.

Santa Fe plans to expand its business concept nationwide. The Company plans to have 20 stores by year-end 2007 and approximately 44 locations by year-end 2009.

Exhibit 1: Number of restaurants, estimated

Source: Company`s presentation.

10 12

20

31

44

05

101520253035404550

2005 2006 2007 2008 2009



During 2007, Santa Fe plans to open a total of nine new stores. The Company has already opened six restaurants in 2007 and plans to open the remaining three stores in the fourth quarter of 2007. In 2008, the Company plans to grow its base by another 11 stores, adding locations in states where it already has sites. The Company’s target markets are small and medium-size cities with populations ranging between 20,000 and 50,000.

The Company has designed and already implemented a 6,000 square foot restaurant prototype. The last four stores opened by Santa Fe were modeled after the prototype, which has 191 seats and a 40-seat terrace that can be enclosed for use year around.

The prototype restaurant has enabled the Company to reduce building costs while realizing a 30% increase in sales per unit. According to Santa Fe management, all of the new stores based on the prototype are producing more than $3 million in annualized sales. The main advantage of prototyping is that these new stores generate the same revenue as bigger stores in larger markets but have significantly lower entry costs. The Company’s key competitors - Texas Roadhouse and Logan’s - have no smaller store prototypes and no plans to build any. As a result, Santa Fe has no real competition in the geographic markets it is targeting for new stores.

Pricing policy

Santa Fe is a mid-priced steakhouse restaurant chain with meal prices averaging approximately $10-$12 per dinner. Building its customer base in this lower-priced segment should allow the Company to increase annual sales to $3.0-$3.5 million per store. In this dining pricing range, there are few major players, so Santa Fe anticipates its expansion costs will be low.

Two competitors in this segment, Logan’s and Texas Roadhouse, together represent approximately 500 restaurants nationwide. However, we believe Santa Fe has a superior operating concept, great leadership and solid growth po-tential, especially in a market where $2 can make the difference in the customer’s dinner selection.

Source: Company presentation.



Santa Fe Cuisine

Santa Fe restaurants offer cuisine featuring a variety of Southwestern foods and influences. This combination of fla-vors distinguishes Santa Fe from other steakhouses. Its most popular menu items, as implied by its logo, are steaks, ribs and fajitas. However, its menu choices range from Mexican dishes to German beer and sausages. South of the Border dishes include enchiladas and fajitas; smoky chipotle peppers permeate many dishes, from barbecue sauce to salad dressings. The Teutonic influence in its menu comes from German immigrants who settled in Texas in the late 1800s. Santa Fe serves Shiner Bock beer, brewed in Shiner, Texas; a hearty jalapeno sausage on the menu comes from Fredericksburg, Texas, where many Ger-man immigrants settled.

Sirloins and rib-eyes, Cowboy Steaks and Texas T-bones are among the chain’s best sellers. Pork ribs basted with homemade chipotle BBQ sauce are also very popular. To ensure top quality, the Company orders meat that has been aged a minimum of 28 days. Then, each res-taurant cuts and ages the meat an additional seven days in-house for added tenderness and flavor. By cutting and aging the meat in-house rather than purchasing pre-packaged and ready-to-use beef, Santa Fe reduces its variable beef costs by approximately 50%. Ribs are cooked at low temperatures and slowly overnight in Alto-Shaam’s Cook and Hold Ovens. These patented Halo Heat ovens preserve the ribs’ natural moisture. Each of the 18 Santa Fe restaurants has two Cook and Hold Ovens able to process the 800 pounds of ribs that the average restaurant serves every week. Everyday, as a matter of policy, the Restaurant Manager performs a quality check on the meat and the cooking process by sampling the ribs before the restaurant opens.

Restaurant management

The management team of each restaurant consists of a General Manager, Kitchen Manager, Bar Manager and two Floor Managers. In addition, stores generating more than $3 million/year sales have a third Floor Manager. An Area Vice-President oversees four to six locations. Each Manager must complete an intensive 12-week, hands-on man-agement course, and is cross-trained in both front- and back-of-the-house responsibilities. The management team receives very competitive wages as well as bonuses based on performance.

The Company has established a metric known as the “Weekly Sheet” to track weekly store costs. The weekly sheet is produced by each store’s General Manager and reviewed with the sheets of other managers in a Monday afternoon weekly sheet meeting with senior management. A monthly profit and loss statement is also produced for each store and shared among store managers. This creates a friendly competition among managers; outstanding performance is rewarded with bonuses.



Restaurant layout

The typical Santa Fe restaurant covers 6,000 square feet and has a separate “to-go” pick up area. The Company uses weathered wood siding and tin roofing to decorate the dining room. Liberal use of old brick, river stone, and cement floors complete the interior. The typical Santa Fe restaurant is a free-standing building located in a high traffic area or close to an interstate exit. As a distinguishing feature, each restaurant has a “Big Ass Ceiling Fan” encompassing the entire dining room and creating an Old West atmosphere. A complimentary bucket of peanuts, homemade yeast rolls, and jalapena corn bread is provided for each table.

The Santa Fe menu is inspired by the cuisine of the Texas Hill Country and required years of research and develop-ment. Santa Fe restaurants offer a diverse and moderately priced lunch and dinner menu with store specialties con-sisting of steaks, ribs and fajitas cooked over an open mesquite grill. The menu features 11 steak cuts ranging in size from 6 to 32 ounces. A best seller is the Lynchburg Steak marinated in Jack Daniels Whiskey. The menu also contains a section called “Chuck-Wagon Favorites” that are specialty items developed exclusively for Santa Fe Cattle Co.

Industry Outlook



Industry Outlook

Consumers are spending more food dollars on meals away from home. While the US restaurant industry’s share of the food dollar was 25 % in 19551, this figure has since risen to 47.5%. In 2004, the average US household spent $2,434 on dining out. This increase reflects rising incomes and growing consumer demand for convenience. According to PriceWaterHouse Coopers,2 , changing US demographics have dramatically impacted the restaurant industry. Mem-bers of Generation X, born between 1965 and 1980, comprise 17% of the population and spend $125 billion annually on consumer goods. Generation X’ers tend to snack more and be more adventurous diners, making them a prime target for convenience, gourmet, premium and ethnic foods. Likewise, the Millennial Generation, born between 1980 and 1990, are food-savvy and readily embrace new dining concepts built around a fusion of cuisines, service styles, themes and technology.

According to the National Restaurant Association (NRA)3 there are more than 935,000 restaurants in the US, which together generated 2006 sales of $511 billion, up 5.1% over 2005. Sales are expected to reach $537 billion in 2007 and equal 4% of US GDP. The National Restaurant Association 2006 Restaurant Industry Fact Sheet4 stresses the overall economic impact of this industry will exceed $1.3 trillion in 2007 as the restaurant industry generates significant sales and employment in related industries such as agriculture, transportation and manufacturing. Every dollar spent by consumers in restaurants generates an additional $2.34 spent in other industries allied with the restaurant industry.

On an inflation-adjusted basis, restaurant industry sales are expected to increase 2.1% in 2007, marking the 16th con-secutive year of real growth. A stable economy, increasing personal disposable income and Americas’ hunger for the flavors, variety and convenience that restaurants provide, will likely drive industry growth in years to come.

1 www.msnbc.msn.com/id/8810799/site/newsweek/#storyContinued2 www.pwc.com/Extweb/industry.nsf/docid/D5176D44C17BDCD8852571080053A129 3 www.restaurant.org/research/ind_glance.cfm4 www.libraries.psu.edu/business/industryguides/restaurants.htm

Exhibit 3: US restaurant-industry sales, $ Bn (left), 2007 estimated sales by type of establishment, % (right)

Source: NRA (www.restaurant.org/research/ind_glance.cfm)

Eating places67%

Managed services

7%

Lodging-place restaurants

5%

Drinking places3%

Retail, recreation,

mobile9%

Other9%

43

200

323

511537

0

100

200

300

400

500

600

1970 1987 1997 2006 2007



According to the NRA’s 2007 Restaurant Industry Forecast1 industry sales growth is strongest in the Western and the Southern US. Among these states, Nevada is expected to lead the nation with 8.1% sales growth; followed by Arizona (7.6%), Florida (7.1%), Texas (6.9%) and Idaho (6.5%). The highest restaurant sales volume is anticipated in California, where sales are expected to reach $54.2 billion, followed by Texas ($32.0 billion), New York ($27.0 billion), Florida ($25.7 billion), and Illinois ($17.8 billion).

The food service industry is divided into three general categories: commercial, institutional, and military. The commercial category, by far the largest, has two major segments: full-service and limited service restaurants, the latter also known as fast food or carryout restaurants. The forecast projects that sales at full-service restaurants will reach $181.6 billion in 2007, an increase of 5.1% over 2006. Sales will be fueled by continued gains in con-sumer disposable income (especially among baby boomers in their peak earning years), and the ability to deliver experiences that meet the demands of food-savvy diners. Limited service restaurants, meanwhile, are projected to register sales of $150.1 billion in 2007, a gain of 5.0% over 2006.

The NRA has developed a Restaurant Performance Index (RPI), which is a monthly composite index that tracks the strength of the US restaurant industry. The outlook for the restaurant industry remained positive in August, with the NRI’s Index registering a modest gain. In addition, the RPI remained above 100 for the 52nd consecu-tive month.2

1 www.restaurant.org/pressroom/pressrelease.cfm?ID=13492 www.restaurantnewsresource.com/article29452.html

4.9

12.5

8.0

5.0

2.74.2

7.7

5.2

13.4

8.3

5.3

2.8

4.4

8.1

0

2

4

6

8

10

12

14

16

Alabama Georgia Indiana Kentucky Mississippi Oklahoma Tennessee

2006 2007

Exhibit 4: Santa Fe’s markets: 2006- 2007 restaurant sales, $ billions

Source: NRA 2007 Restaurant Industry Forecast (www.restaurant.org/pressroom/pressrelease.cfm?ID=1349).



Exhibit 5:

Source: NRA ; (www.restaurant.org/pdfs/research/index/200708.pdf)

101.8

100.9100.7

101.5101.2 101.1

101.7

100.6100.8

101.9

101.0 100.9

101.4

100.9101.1

99.0

99.5

100.0

100.5

101.0

101.5

102.0

102.5

Jun-06

Jul-06

Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

Jan-07

Aug-07

Feb-07

Mar-07

Apr-07

May-07

Jun-07

Jul-07

Restaurant operators reported stronger customer traffic levels in August. In addition, capital expenditures increased. Some 58% of operators said they had invested in equipment, expansion or remodeling during the last three months, the strongest level in nearly three years.



Financial Analysis

Income statement

Santa Fe’s revenues increased 32.4% to a record $21.6 million during 2006 and were up 286% from 2003 levels. The Company appears well-positioned to reach its 2007 goal of $33 million in sales, having reported nine months 2007 sales of $24.4 million and expansion to 20 locations.

Since 2003, Santa Fe has maintained cost of sales at a consistent level of 34% of sales. The Company anticipates similar cost of sales levels for the next 2 years. As a result, we expect the operating leverage provided by increasing sales vol-ume should enable Santa Fe to push EBITDA margins to a 7-9% range and possibly exceed 9% by year-end 2007.

Sales segments

Santa Fe has three main sources of sales: Food; • Miscellaneous & novelty items;• Liquor/Beer/Wine.•

The Food segment provides about 90% of total sales.

Sales, $ Mn

Cost of sales, % sales

Labor costs, % of sales

Other costs, % of sales

Operating margin

Net margin

16.3

33.7%

27.8%

3.0%

20.1%

5.4%

2005

21.6

34.3%

27.2%

3.0%

19.4%

3.0%

2006

32.5%

9.1 p.p.

-0.5 p.p.

0.0 p.p.

-0.7 p.p.

-2.4 p.p.

% Chg

33.5

35.1%

28.3%

3.2%

18.2%

2.9%

2007E

Exhibit 6: Revenue and margins

Source: SFHD presentations; analyst estimates.



Average annual per store sales are over $2.8 million, while average annual per store EBIDTA is approximately 7% of sales.

Balance sheet and liquidity

While the Company is reporting positive operating cash flows, its rapid expansion plans will likely require additional financing, which may increase financial risk or cause dilution.

The Company’s growth plans include build-to-suit, ground lease and Company-financed stores. Santa Fe plans to open a total of nine new stores in 2007 and an additional 11 stores in 2008. Therefore, it is likely that additional exter-nal financing will be required.

Exhibit 7: Revenue segments

Source: SFHD presentations; analyst estimates.

Sales, $ Mn

Food

Misc. & Novelty

Liquor/Beer/Wine

Gross margin

Food

Misc. & Novelty

Liquor/Beer/Wine

16.3

15.0

-

1.3

66.3%

65.8%

-

71.1%

2005

21.6

19.7

0.03

1.9

65.7%

65.5%

-

70.6%

2006

32.5%

31.3%

-

46.2%

-0.6 p.p.

-0.3 p.p.

-

-0.5 p.p.

% Chg

33.5

30.2

0.08

3.3

64.9%

64.5%

-

70.7%

2007E

55.1%

53.3%

142%

73.7%

-0.8%

-1.0%

-

-0.1%

2007E vs. 2006

Exhibit 8: Balance sheet, $ thousand

Source: SFHD presentations

Cash and equivalents

Debt

Equity

869.6

10372.0

(733.0)

08-Oct-07



Valuation

Revenue forecast

The restaurant industry is poised for moderate long-term growth, fueled by rising income levels and growing con-sumer demand for variety and convenience. Despite the moderate growth outlook, the industry size is enormous: revenues exceed $530 billion and the average US household spends around $2,500 annually on dining out.

Santa Fe’s operating concept addresses the underserved $10-12 casual dining steakhouse restaurant segment, provid-ing customers with quality food, exceptional service and a fun dining experience, all at a reasonable price.

The Company’s growth strategy is two-fold:Expand the number of restaurant locations: the Company targets approximately 44 restaurant by year-end 2009; • and Increase average per store revenues. Santa Fe anticipates per store revenues averaging $2.8-3.0 million annually • by 2009.

In addition, revenue growth should allow the Company to record strong gains in operating and EBITDA margins.

Given management’s strong track record, we believe these growth estimates are conservative. Our 2009 target as-sumes revenues averaging $2.6 million per store and 44 restaurants. However, according to Santa Fe’s management, annualized sales already exceed $2.6 million per store and are expected to reach $3 million in 2009.

Peer comparison

We based out peer analysis on regional restaurant chains with strong positions in Santa Fe’s target markets. The valu-ations of these restaurant companies reflect their growth prospects, with faster-growing chains enjoying premium valuations.

Exhibit 9: Revenue forecast, $ Million

Source: Company’s presentations, analyst estimates.

5.6 9.6 16.3 21.633.5

63.1

101.2

0

20

40

60

80

100

120

2003 2004 2005 2006 2007E 2008E 2009E



In terms of revenues growth, Santa Fe is a market leader and therefore warrants a premium valuation. Despite this, the Company is valued at a sizable discount to its peer group based on P/S multiples. We believe an 80% premium for Santa Fe relative to the peer group’s forward P/S multiple is more than reasonable, given 2006/07 revenue growth and the Company’s expansion plans for 2008 and 2009.

Applying an 80% premium to the peer group forward 1.10 P/S multiple and our 2008 revenue estimate, we derive a $4.75 target price for Santa Fe shares.

Exhibit 10: Peer comparison

Source: Reuters, Analyst estimates

Ruth’s Chris Steak House Inc.

Texas Roadhouse Inc.

Chipotle Mexican Grill Inc.

Buffalo Wild Wings

Famous Dave’s

Darden Restaurants

Western Sizzlin Corp.

Median

Santa Fe Holding Co.

RUTH

TXRH

CMG

BWLD

DAVE

DRI

WSZL

SFHD

symbol10/19/2007

13.50

11.25

123.40

39.32

16.90

43.10

15.00

1.90

Share, $

313

841

4,050

692

166

6,120

27

50

$ Mn

12.39

20.83

62.01

33.90

30.18

17.04

51.05

26.18

-60.66

2007

10.00

16.79

49.16

27.69

21.95

16.20

n/a

19.91

33.41

2008

0.96

1.17

3.79

2.10

1.31

1.10

1.50

1.31

1.49

2007

0.85

0.97

3.07

1.70

1.10

0.96

1.35

1.10

0.79

2008

327.6

721.7

1,070.0

329.6

126

5,567

18

33.47

2007

370.2

866.3

1,320.0

406.1

151

6,373

20

63.05

2008

13.0%

20.0%

23.4%

23.2%

19.8%

14.5%

11.1%

19.8%

88.4%

%Chg



Analyst Summary

Santa Fe Holding Company is a restaurant holding company which currently owns and operates a chain of 18 Santa Fe Cattle Co. “roadhouse” steak restaurants located in Alabama, Georgia, Mississippi, Indiana, Tennessee, Kentucky and Oklahoma. These restaurants provide customers with a wide selection of aged USDA Choice steaks and Chuck Wagon favorites developed exclusively for Santa Fe Cattle Co.

Santa Fe differentiates itself from competitors by being the only casual dining steakhouse restaurant chain offering quality Southwestern fare and mid-priced steaks. Its intent is to garner a large share of the $10-12/dinner niche of the steakhouse restaurant segment.

The Company has achieved impressive growth since Danny York’s return as Chairman and CEO. He originally pio-neered the Santa Fe restaurant concept. Since 2003, the Company’s revenues have increased more than 286% and sales are forecast to reach $33 million in 2007. At the same time, the Company has significantly improved its operating performance by turning profitable and increasing average per store revenues by 65%. Moreover, with the planned expansion of the restaurant chain to 44 locations, we predict Santa Fe will exceeding $100 million in revenues by year-end 2009. As a result, we are initiating coverage of Santa Fe Holding Company with a Speculative Buy rating and a $4.75 price target.

Strong competition

The casual dining restaurant segment is intensely competitive with respect to price, service, location, food quality, atmosphere and overall dining experience. The Company faces strong competition from a number of well-established chains. Some of these competitors have greater marketing and financial resources than Santa Fe and greater brand visibility. Competitive pressures could limit the Company’s ability to raise prices and impact its profitability.

Many restaurants less than one year old

A number of the Company’s restaurants have been opened recently, making it difficult to predict their future operat-ing results. Moreover, revenues could fall below forecasted levels. If new restaurants perform below expectations, the Company could slow expansion of the chain, impacting future revenues and our valuation case.

Need for additional capital

The Company will need to raise additional capital to meet its chain expansion goals. There can be no assurance that the Company will be able to obtain the needed financing on favorable terms if at all. The Company’s ability to obtain additional financing will depend on market conditions, its operating performance, investor sentiment and its ability to service additional debt.

Risk Factors

Management



Analyst Summary Dependence on management personnel

Santa Fe will need to hire and train new managers as it expands its chain of restaurants. If the Company is unable to attract and retained talented managers, growth could slow and operating results may suffer.

Concentration in a single geographic area

Many of Santa Fe’s existing or planned restaurants are concentrated in a single geographic area. Reduced population or economic growth in its target markets could slow the Company’s growth and natural disasters such as hurricanes, tornadoes and earthquakes could impact sales and profitability.

Danny York – CEO, Chairman

Mr. York has more than 20 years restaurant chain management experience. He is a member of the Tennessee Res-taurant Association and is a former member of the Board of Directors of Blimpie International, a chain of over 1,700 sub sandwich stores. During the late 1980’s and early 1990’s, Mr. York was a multi-unit franchisee of Western Sizzlin Steakhouse, a chain of over 600 restaurants. Mr. York’s stores consistently ranked among the top 5 in sales. During that period, Mr. York and Mr. Wachtel, the Chairman of Western Sizzlin Steakhouse, developed the Logan’s Road-house concept: they transformed an old Western Sizzlin steakhouse in Kentucky into the first Logan’s Roadhouse. Logan’s Roadhouse went public in 1995 and was purchased by CBRL Group for more than $180 million in 1999. Mr. York sold his Western Sizzlin franchised units in 1995 to purchase a share of Restaurant Management Group (RMG) in Nashville, TN. From 1995 to 2000, Mr. York served as Chief Operating Officer of RMG. He was also President of Santa Fe Cattle Co., a subsidiary of RMG; from 1996 to 2000, he refined and grew the Santa Fe concept to 17 units, each averaging over $2.6 million in annual sales. Mr. York sold his 40% interest in Santa Fe Cattle Co. in 2000 at the same time he sold his interest in RMG.

The chain languished for several years until 2003 when Mr. York repurchased the remaining six stores and began revitalizing the concept. Mr. York is a former consultant to Maui Taco Inc., a subsidiary of Blimpies International, and through his company BirdDog, LLC, is the largest shareholder of Shamrock Investments, LLC - the largest developer and master franchisor of Roly Poly sandwich shops. Mr. York graduated from Rollins College with a degree in Fi-nance and Economics.

John Davis – President

Mr. Davis joined Santa Fe Cattle Co. as Vice President of Operations in 2003 and was promoted to President in Janu-ary of 2007. Mr. Davis began his career in the restaurant industry in 1981 and accumulated a solid track record, con-tributing to the successful launch and management of several restaurant chains.

In 1996, Mr. Davis worked for RMG and was responsible for the conceptual development of what became Santa Fe Cattle Co. Mr. Davis served as both multi-unit supervisor and director of menu development through December 2000. During this period, the Company grew to 13 units and annual sales exceeding $30 million. In mid-1989, Mr.

Management



Davis became part of a group of five partners that created the concept for Texana Grill. This restaurant, a dinner-only, Texas-style concept, quickly grew to $3.5 million in annual sales. Mr. Davis served as one of the chain’s director/opera-tors for the next six years. In 1986, Mr. Davis joined a group consisting of original founders of Studebakers who had branched out and formed Tempe Restaurant Associates in Phoenix, AZ. Over the next three years, the group created and opened three successful new concepts: Lupe’s Mexican Bar & Grill, Pacific Beach Club, and Balboa’s Café. In 1984, Mr. Davis joined Studebakers of America, Inc. and became part of a “set-up” group, opening clubs in Clearwater, FL., and Colorado Springs, CO. Sales for these clubs exceeded $4 million annually. Mr. Davis began his career in the restaurant industry in 1981, working for a franchise group that owned Chi-Chi’s Mexican Restaurants. Over the next three years, Mr. Davis was involved in opening four additional restaurants. Mr. Davis graduated from Abilene Chris-tian University in Abilene, Texas with majors in accounting/finance.



Appendix

Exhibit 11: Santa Fe Cattle Co. restaurants and their locations

Source: Company`s website

AUBURN

BESSEMER

FT. PAYNE

LEEDS

PELHAM

ROME

SHELBYVILLE

BOWLING GREEN

TUPELO

MIDWEST CITY

NORMAN

OKLAHOMA CITY

OKLAHOMA CITY

SHAWNEE

COLUMBIA

MURFREESBORO

NASHVILLE

1660 S. College Street Auburn, Alabama 36832

5020 Academy Lane Bessemer, Alabama 35020

305 Ruby Tuesday Lane SW Ft. Payne, Alabama 35968

1770 Ashville Road NE Leeds, Alabama 35094

3296 Pelham Parkway Pelham, Alabama 35124

Address

707 Turner McCall Blvd Rome, Georgia 30165

2103 Intelliplex Drive Shelbyville, Indiana 46176

247 Three Springs Road Bowling Green:, Kentucky 42102

713 South Gloster Street Tupelo, Mississippi 38801

7101 SE 29th Street Midwest City, Oklahoma 73110

760 North Interstate Drive Norman, Oklahoma 73072

1445 SW 74th Street Oklahoma City, Oklahoma 73159

1800 S. Meridian Oklahoma City, Oklahoma 73108

Suite 1660 - Shawnee Mall 4901 North Kickapoo Street

620 James Campbell Boulevard Columbia, Tennessee 38401

1824 Old Fort Parkway Murfreesboro, Tennessee 37130

2520 Music Valley Drive Nashville:, Tennessee 37214

Tel (334) 887-5142 Fax (334) 887-5242

Tel (205) 424-2213 Fax (205) 424-2214

Tel (256) 844-9422 Fax (256) 844-9743

Tel (205) 699-2039 Fax (205) 699-2067

Tel (205) 685-0440 Fax (205) 685-0430

Tel./Fax.

Tel 706-291-8076 Fax 706-291-8140

Tel (317) 642-0089 Fax (317) 642-0091

Tel (270) 843-4666 Fax (270) 781-0308

Tel (662) 680-9864 Fax (662) 680-9536

Tel (405) 732-0200 Fax (405) 732-4516

Tel (405) 329-3598 Fax (405) 329-5986

Tel (405) 682-2686 Fax (405) 682-1061

Tel (405) 601-8299 Fax (405) 601-8344

Tel (405) 214-1927 Fax (405) 214-1172Tel (931) 840-0800 Fax (931) 840-0887

Tel (615) 890-3030 Fax (615) 893-2740

Tel (615) 885-7852 Fax (615) 885-7693

Alabama

Georgia

Indiana

Kentucky

Mississippi

Oklahoma

Tennessee



DisclaimerBeacon Equity Reserach (otherwise known as BER) is an independent research firm specializing in small and micro capitalization compa-nies. BER has no investment banking or consultation conflicts thereby minimizing the inherent conflicts of interest between the research analysts and the companies they cover. BER is not a registered investment advisor or broker dealer. No information in this report should be construed as an endorsement to either buy or sell any securities mentioned in this report. The analyst(s) who prepared this report rely on publicly avail¬able information which neither the analyst, nor BER, can guarantee to be error-free or factually accurate. All conclusions in this report are deemed reasonable and appropriate by the author. The Private Securities Litigation Reform Act of 1995 provides inves-tors a “safe harbor” in regard to forward-looking statements. To fully comply with the requirements of this law, BER cautions all investors that such forward-looking statements in this report are not guarantees of future performance. Unknown risk, uncertainties, as well as other uncontrollable or unknown factors may cause actual results to materially differ from the results, performance or expectations ex-pressed or implied by such forward-look¬ing statements. Investors should exercise good judgment and perform adequate due-diligence prior to making any investment. Beacon Equity Research and its affiliates have been directly compensated a total of nine thousand dol-lars directly from Rovert Consulting for enrollment of SFHD in its research program.Ratings and price targets in this report should not be construed as recommendations or stock price predictors. Readers of this report are urged to use due-diligence in any purchase of security listed herein. Readers should consult the Company’s SEC filings as well as our initial report on the firm to better understand the inherent risks associated with this security. There may be many uncontrollable or unknown factors which may cause actual results to materially differ from the results, performance or expectations expressed or implied by such forward-looking statements. Investors should exercise good judgment and perform adequate due-diligence prior to making any investment.

All decisions are made solely by the analyst and independent of outside parties or influence.

I, Victor Sula, PhD, the author of this report, certify that the material and views presented herein represent my personal opinion regard-ing the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compen-sation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own and shares or securities in any of the companies featured in this report.

Victor Sula, Ph.D. - Senior Analyst

Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assis-tance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.

beacon equity research analyst: victor sula, phd

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