Trading Below Net Current Asset Value:
Trans World Entertainment Corp
Ticker: TWMC
Price: $6.45
Current P/E: 11
Shares Out: 31.9 million
Market Cap: $208 million
Net Current Asset Value: $215.4 million
Average daily volume: 115,000
*All Data as of market close 11/1/05
Trans World entertainment is an Albany, New York based specialty retailer, operating a chain of 810 stores, selling music, video, video home system products and games in 46 states. 249 stores are free standing, operating under the“Coconuts Music and Movies”, “Wherehouse Music and Movies”, “CD World”, “Streetside Records”, “Spec’s Music”, and “Second Spin” brands, while 560 are mall based, operating under the “FYE, For Your Entertainment” brand. The company also operates one Planet Music store. Music (CD’s, mainly) accounted for 55 percent of 2005 sales, Video products represented 29.2 percent, while Games and other represented 15.8 percent. (Before we go any further with this report, this company is not a potential real estate play, as 809 of the stores are under operating leases)
We recently identified this as a profitable company trading below NCAV. (Finding a company trading below NCAV that isn’t profitable is relatively easy. Those that are simultaneously generating a profit are few and far between.)
We are not typically crazy about retailers here at Cheap Stocks, especially those in highly competitive spaces, such as Trans World. However, discovering a retailer trading below NCAV is quite rare. One of our first postings when we started this site focused on Circuit City, at the time, cash rich, and trading below its NCAV, also in a highly competitive retail segment. Circuit City subsequently had a nice run-up. We are not making a comparison between the two companies, however.
The numbers
Fiscal year 2005 sales were $1.365 billion, up slightly from 2004’s $1.33 billion. Net income was $41.8 million in 2005, versus income of $23 million in 2004. Net profit margins were 2.8 percent in 2005, up sharply from 2004’s 1.4 percent.
…..And Now For The Bad News….
Companies often make the NCAV list because their price, and hence market cap fall, sometimes dramatically. It’s not typically a case of net current assets rising. In Trans World’s case, the company has taken a hit recently, falling from the $15 range this past spring, to the current $6 level. Why the drubbing? The company has been lowering earnings guidance significantly. Back in May, the company announced earnings expectations of $.85-$.90 per share for the year (ending 1/06). By July, their expectations fell to $.80-$.85. In August, the company lowered guidance again, to $.65-$.70. Last month, the company lowered guidance yet again, all the way down to $.25-$.30. Trans World attributed the latest news to weakness in music and DVD sales, and the lack of any strong new releases. Can it get any worse? It certainly could, given this company’s recent pre-announcement record.
The balance sheet
As of 7/30/05, the company had $50.9 million in cash and $20.9 million in long-term debt (including capital leases). Current ratio stood at 2.22, while quick ratio was .38. All in all, a decent, but not great, balance sheet. (If you’ve read our NCAV reports in the past, you know how much we here at Cheap Stocks love cash, and dislike debt in our NCAV companies)
The NCAV Calculation (in millions)
Current Market Cap: $208
Current Assets: $484
Current Liabilities: $218
Long Term Liabilities (primarily LT debt) $40
Net Current Asset Value: $215
NCAV/Market Cap: 1.03
Institutional ownership (greater than 2 percent)
Morgan Stanley: 10.3 %
Dimensional Fund Advisors: 9.2 %
Barclays Global Investors: 4.8 %
LSV Asset Management: 3.5 %
American Century Investment Management: 2.1 %
AX Rosenberg Investment Management: 2%
Conclusion
We are not crazy about the highly competitive business in which Trans World operates. While the current assets are highly concentrated in inventory- which must be moved in order to realize sales/profits- that is par for the course with a retailer. Otherwise, the balance sheet is decent, with net cash of $30 million, or about $1 per share. The company’s constant negative earnings guidance announcements are troublesome. The question is whether all the bad news, and none of the positives, are currently reflected in what appears to be a cheap current price. Only time will tell, but this is one worth watching.
*The author does not have a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Wednesday, November 02, 2005
Saturday, October 22, 2005
Top 20 Market Cap Companies Trading Below Net Current Asset Value
A few weeks back, your Cheap Stocks editor stated that he was having trouble identifying any compelling companies trading below NCAV. While that sentiment has not changed radically, this weeks report will identify a list of companies currently trading below their NCAV. Keep in mind that, unless stated, no judgements are being made on these companies. Many NCAV companies bear that distinction with good reason: they may be near death. You may notice one familiar name on this list, Discovery Partners (DPII), which we reported on several months back. That stock is down about 15 percent since that report.
Company(Ticker), Mkt Cap, NCAV
UTSTarcom(UTSI), 646.5, 677.9
Audiovoxx(VOXX), 305.8, 341.2
InFocus(INFS), 130.3, 183.6
Discovery Partners(DPII), 74.7, 86.9
Lazare Kaplan(LKI), 71.7, 81.2
Corgentech(CGTK), 70.3, 86.1
Axonyx(AXYX), 56.3, 62.1
Network Engines(NENG), 50.6, 51.1
Pharmos Corp(PARS), 37.7, 49.2
Concord Camera(LENS), 34.1, 58.4
Remec Inc(REMC), 32.7, 121.2
IntraBiotics Pharmaceuticals(IBPI), 31.9, 48.3
Adams Golf(ADGO), 31.1, 31.4
First Aviation Services(FAVS), 30.1, 32.5
Strategic Distribution(STRD), 29.6, 42.3
Coast Distribution System(CRV), 27.1, 27.8
Sport Chalet Inc(SPCHB), 23, 29.2
Cadus Corp(KDUS), 21.3, 24.4
Enesco Group(ENC), 19.6, 37.5
Catalytica Energy Systems(CESI), 19.5, 22.2
There you have it. A lot of very small names on this list. One of the more interesting ones is electronics manufacturer Audiovoxx, which was trading below its NCAV 3 years ago, and was referenced in a story I published then. At the time, VOXX was trading around $4 a share, and subsequently had a very nice run up, knocking it off the NCAV list. Now, its back on the list, at a much higher price ($13 range).
As always, be very cautious with these companies. Many of them may be here for good reason.
*The author does not have a position in any of the stocks mentioned in this report. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
A few weeks back, your Cheap Stocks editor stated that he was having trouble identifying any compelling companies trading below NCAV. While that sentiment has not changed radically, this weeks report will identify a list of companies currently trading below their NCAV. Keep in mind that, unless stated, no judgements are being made on these companies. Many NCAV companies bear that distinction with good reason: they may be near death. You may notice one familiar name on this list, Discovery Partners (DPII), which we reported on several months back. That stock is down about 15 percent since that report.
Company(Ticker), Mkt Cap, NCAV
UTSTarcom(UTSI), 646.5, 677.9
Audiovoxx(VOXX), 305.8, 341.2
InFocus(INFS), 130.3, 183.6
Discovery Partners(DPII), 74.7, 86.9
Lazare Kaplan(LKI), 71.7, 81.2
Corgentech(CGTK), 70.3, 86.1
Axonyx(AXYX), 56.3, 62.1
Network Engines(NENG), 50.6, 51.1
Pharmos Corp(PARS), 37.7, 49.2
Concord Camera(LENS), 34.1, 58.4
Remec Inc(REMC), 32.7, 121.2
IntraBiotics Pharmaceuticals(IBPI), 31.9, 48.3
Adams Golf(ADGO), 31.1, 31.4
First Aviation Services(FAVS), 30.1, 32.5
Strategic Distribution(STRD), 29.6, 42.3
Coast Distribution System(CRV), 27.1, 27.8
Sport Chalet Inc(SPCHB), 23, 29.2
Cadus Corp(KDUS), 21.3, 24.4
Enesco Group(ENC), 19.6, 37.5
Catalytica Energy Systems(CESI), 19.5, 22.2
There you have it. A lot of very small names on this list. One of the more interesting ones is electronics manufacturer Audiovoxx, which was trading below its NCAV 3 years ago, and was referenced in a story I published then. At the time, VOXX was trading around $4 a share, and subsequently had a very nice run up, knocking it off the NCAV list. Now, its back on the list, at a much higher price ($13 range).
As always, be very cautious with these companies. Many of them may be here for good reason.
*The author does not have a position in any of the stocks mentioned in this report. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Sunday, October 09, 2005
Bob Evans Farms
Ticker: BOBE
Price: $22.75
Mkt Cap: 799 million
Enterprise Value: $1064 million
Dvd Yield: 2.1 %
Total Restaurants: 683
Owned Restaurants: 516 (includes property)
As I noted a few weeks back, one area we’ve started to research is restaurant chains that actually own their locations. These days, many lease their stores. In light of the recent Sears-Kmart deal, which was largely real-estate focused, and similar chatter about Toys R Us and even McDonald’s, we’ve got our eyes open for similar situations, albeit on a much smaller, “Cheap Stocks” kind of scale.
You’ve probably heard of Bob Evans Farms, a casual dining chain that owns and operates 591 Bob Evans Restaurants in 21 states in the Southeast, Midwest, and Mid-Atlantic. They also operate 92 Mimi’s café’s primarily in California and the west, and have a food products business as well. All Mimi’s locations are leased, but 516 Bob Evans Restaurants are owned by the company. That is where it may get interesting.
I’ve only been to Bob Evans once. It was somewhere in the middle of Pennsylvania, the day after our wedding, and my new bride and I were on our way to Philadelphia airport. The food was fine as I recall, although she was feeling sick, and didn’t eat much…..(I guess that’s what being married to your Cheap Stocks editor can do to a girl…) In any event, since then, I’ve passed many Bob Evans, and those that I’ve seen have mostly been near major highways.
Now, we don’t claim to know where each owned restaurant property is located, or what these properties are worth in their local markets. We just found it interesting that a $1 billion (enterprise value) chain owns so much real estate. In fact, if you divide enterprise value by owned restaurants, you get just over $2 million. Is each Bob Evans property worth $2 million? Probably not, but we really can’t say. Still, it’s an intriguing situation.
Fundamentals
It’s not a great story fundamentally, but the chain is profitable. Although total sales grew 21.9 percent to 1.46 billion in 2005, same store sales for Bob Evans Restaurants fell 3.6 percent. The company opened 37 new Bob Evans and 11 new Mimi’s during the year, accounting for the sales increase. The company earned $37 million in 2005 for a 2.5 percent net profit margin (not even close to McDonald-like margins), down from 2004’s $72 million and 6 percent net.
Operating Segments
The food products segment (Owens sausage, Bob Evans brand products) accounted for 18.5 percent, or $260.9 million in 2005 revenue, versus 20.7 percent, or $248.4 in 2004. Operating margins are not spectacular for either business, 4.7 percent for restaurants in 2005, and 3.4 percent for food products, versus 9.7 and 7 in 2004.
Costs
For restaurants, the number one cost of doing business is labor and benefits costs, which represented 40.9 percent of sales in 2005, and 39.6 percent in 2004 for Bob Evans. Next up is the cost of materials, which represented 25.9 percent in 2005, and 24.4 percent in 2004. The long and short is that rising labor costs, and growing materials costs (rising fuel costs don’t help matters) are not good for the restaurant industry. Throw in an economic slowdown, and people don’t eat out as often.
Expansion Plans
The company plans to open 20 new Bob Evans and 15 new Mimi’s in fiscal year 2006, along with plans to remodel 50 Bob Evans, and rebuild another 14.
Conclusions
We are not crazy about the restaurant sector right now. We also don’t see Bob Evans as a powerhouse brand in the industry. A niche player, maybe. A good marketing campaign might work wonders. What we do find intriguing, however, is the fact that this company is asset rich, and we of course, mean the real estate. We don’t currently have a position in Bob Evans, but will follow their progress.
*The author does not have a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Ticker: BOBE
Price: $22.75
Mkt Cap: 799 million
Enterprise Value: $1064 million
Dvd Yield: 2.1 %
Total Restaurants: 683
Owned Restaurants: 516 (includes property)
As I noted a few weeks back, one area we’ve started to research is restaurant chains that actually own their locations. These days, many lease their stores. In light of the recent Sears-Kmart deal, which was largely real-estate focused, and similar chatter about Toys R Us and even McDonald’s, we’ve got our eyes open for similar situations, albeit on a much smaller, “Cheap Stocks” kind of scale.
You’ve probably heard of Bob Evans Farms, a casual dining chain that owns and operates 591 Bob Evans Restaurants in 21 states in the Southeast, Midwest, and Mid-Atlantic. They also operate 92 Mimi’s café’s primarily in California and the west, and have a food products business as well. All Mimi’s locations are leased, but 516 Bob Evans Restaurants are owned by the company. That is where it may get interesting.
I’ve only been to Bob Evans once. It was somewhere in the middle of Pennsylvania, the day after our wedding, and my new bride and I were on our way to Philadelphia airport. The food was fine as I recall, although she was feeling sick, and didn’t eat much…..(I guess that’s what being married to your Cheap Stocks editor can do to a girl…) In any event, since then, I’ve passed many Bob Evans, and those that I’ve seen have mostly been near major highways.
Now, we don’t claim to know where each owned restaurant property is located, or what these properties are worth in their local markets. We just found it interesting that a $1 billion (enterprise value) chain owns so much real estate. In fact, if you divide enterprise value by owned restaurants, you get just over $2 million. Is each Bob Evans property worth $2 million? Probably not, but we really can’t say. Still, it’s an intriguing situation.
Fundamentals
It’s not a great story fundamentally, but the chain is profitable. Although total sales grew 21.9 percent to 1.46 billion in 2005, same store sales for Bob Evans Restaurants fell 3.6 percent. The company opened 37 new Bob Evans and 11 new Mimi’s during the year, accounting for the sales increase. The company earned $37 million in 2005 for a 2.5 percent net profit margin (not even close to McDonald-like margins), down from 2004’s $72 million and 6 percent net.
Operating Segments
The food products segment (Owens sausage, Bob Evans brand products) accounted for 18.5 percent, or $260.9 million in 2005 revenue, versus 20.7 percent, or $248.4 in 2004. Operating margins are not spectacular for either business, 4.7 percent for restaurants in 2005, and 3.4 percent for food products, versus 9.7 and 7 in 2004.
Costs
For restaurants, the number one cost of doing business is labor and benefits costs, which represented 40.9 percent of sales in 2005, and 39.6 percent in 2004 for Bob Evans. Next up is the cost of materials, which represented 25.9 percent in 2005, and 24.4 percent in 2004. The long and short is that rising labor costs, and growing materials costs (rising fuel costs don’t help matters) are not good for the restaurant industry. Throw in an economic slowdown, and people don’t eat out as often.
Expansion Plans
The company plans to open 20 new Bob Evans and 15 new Mimi’s in fiscal year 2006, along with plans to remodel 50 Bob Evans, and rebuild another 14.
Conclusions
We are not crazy about the restaurant sector right now. We also don’t see Bob Evans as a powerhouse brand in the industry. A niche player, maybe. A good marketing campaign might work wonders. What we do find intriguing, however, is the fact that this company is asset rich, and we of course, mean the real estate. We don’t currently have a position in Bob Evans, but will follow their progress.
*The author does not have a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Wednesday, September 28, 2005
Update:
Zapata Corp
Ticker: ZAP
Price:$7.02
You may recall our May 11 report on tiny Zapata Corp, a holding company which owns significant stakes in two publicly traded companies, Omega Protein, (ticker:OME)and Safety Components Inc, (Ticker :SAFY)and has a nice amount of cash on it's balance sheet. The main reason we liked the company was because in our minds, (however small they may be) buying Zapata shares was the cheapest way to gain exposure to Omega Protein, whose fish oil business we like.
On September 26th, Zapata announced that it has sold, subject to shareholder approval, its 77 percent stake in Safety Components to a private equity investor, Wilbur Ross, for $51.2 million, or $12.30 per share( by our calculation, but we don't yet have all the details.) At the time of our May research piece, Safety was trading at $14.95 per share, and most recently traded on the OTC Bulletin Board at $14.00. While we are disappointed with the sale price, it reflects a discount because Zapata's stake is large, and Safety Components has little liquidity. Such discounts are somewhat customary, and in some cases, quite larger. We don't know all the details of the deal yet, but will update the sum of the parts valuation summary we produced in May, once they become clear.
In any event, the news has had little effect on Zapata, which is down 20 percent since our May report. We still hold Zapata shares, and will be quite interested to find out how Mr. Glazer, as in Malcolm Glazer, 51 percent owner of Zapata, will utilize the proceeds.
*The author has a position in Zapata. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Zapata Corp
Ticker: ZAP
Price:$7.02
You may recall our May 11 report on tiny Zapata Corp, a holding company which owns significant stakes in two publicly traded companies, Omega Protein, (ticker:OME)and Safety Components Inc, (Ticker :SAFY)and has a nice amount of cash on it's balance sheet. The main reason we liked the company was because in our minds, (however small they may be) buying Zapata shares was the cheapest way to gain exposure to Omega Protein, whose fish oil business we like.
On September 26th, Zapata announced that it has sold, subject to shareholder approval, its 77 percent stake in Safety Components to a private equity investor, Wilbur Ross, for $51.2 million, or $12.30 per share( by our calculation, but we don't yet have all the details.) At the time of our May research piece, Safety was trading at $14.95 per share, and most recently traded on the OTC Bulletin Board at $14.00. While we are disappointed with the sale price, it reflects a discount because Zapata's stake is large, and Safety Components has little liquidity. Such discounts are somewhat customary, and in some cases, quite larger. We don't know all the details of the deal yet, but will update the sum of the parts valuation summary we produced in May, once they become clear.
In any event, the news has had little effect on Zapata, which is down 20 percent since our May report. We still hold Zapata shares, and will be quite interested to find out how Mr. Glazer, as in Malcolm Glazer, 51 percent owner of Zapata, will utilize the proceeds.
*The author has a position in Zapata. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Saturday, September 24, 2005
Where Have all the Stocks Trading Below Net Current Asset Value Gone
When we started this site, the focus was primarily on Ben Graham's concept of investigating companies trading below their NCAV. (Actually, Graham was more stringent than we are, preferring stocks trading at 2/3 or less of their NCAV.)If you hadn't noticed, it's been quite a while since we featured an NCAV company. The truth is, your editor is not finding that many of interest these days, and I'd rather focus on other areas of value (at least what we here at Cheap Stocks consider to be value), than fill space with the lastest NCAV company that is nothing more than a cigar butt with no puffs left.
When I started researching and writing about NCAV companies in the late 90's, early 2000, there were many promising examples. In 2001/2002, there were literally hundreds of examples, some that ultimately rewarded shareholders well. But during certain periods, there just aren't many worth mentioning. But that can change very quickly. We'll keep looking.....
What are we working on now?
One fascinating area (to us anyway)is trying to identify creative real estate plays. You know we have an affinity for companies with land holdings, but this is a little different. Remember the Sears/K-mart story? It was all about retail locations owned by Sears. The same with Toys R Us. McDonald's also had a nice run-up a few months back when it was suggested that the company's owned restaurant sites might be worth a great deal more than the market price reflected.
We started the research a few months back, trying to identify similars situations. Our research, which is still in the initial phase, is focusing on the retail restaurant sector. At this point, we have identified one restaurant chain, a small cap, of course, that happens to own most of its locations. You've no doubt heard of this company. We hope to publish our initial piece on this company (which we don't own) next week.
When we started this site, the focus was primarily on Ben Graham's concept of investigating companies trading below their NCAV. (Actually, Graham was more stringent than we are, preferring stocks trading at 2/3 or less of their NCAV.)If you hadn't noticed, it's been quite a while since we featured an NCAV company. The truth is, your editor is not finding that many of interest these days, and I'd rather focus on other areas of value (at least what we here at Cheap Stocks consider to be value), than fill space with the lastest NCAV company that is nothing more than a cigar butt with no puffs left.
When I started researching and writing about NCAV companies in the late 90's, early 2000, there were many promising examples. In 2001/2002, there were literally hundreds of examples, some that ultimately rewarded shareholders well. But during certain periods, there just aren't many worth mentioning. But that can change very quickly. We'll keep looking.....
What are we working on now?
One fascinating area (to us anyway)is trying to identify creative real estate plays. You know we have an affinity for companies with land holdings, but this is a little different. Remember the Sears/K-mart story? It was all about retail locations owned by Sears. The same with Toys R Us. McDonald's also had a nice run-up a few months back when it was suggested that the company's owned restaurant sites might be worth a great deal more than the market price reflected.
We started the research a few months back, trying to identify similars situations. Our research, which is still in the initial phase, is focusing on the retail restaurant sector. At this point, we have identified one restaurant chain, a small cap, of course, that happens to own most of its locations. You've no doubt heard of this company. We hope to publish our initial piece on this company (which we don't own) next week.
Saturday, September 17, 2005
Plum Creek TimberTicker: PCL
Price: $38.83
Market Cap: $7.14billion
Enterprise Value: $8.7 billion
Dividend Yield: 3.9%
P/E: 23.5
As I sit writing this week’s column, it’s a beautiful day in western Pennslvania, where we are visiting this weekend. As I gaze out over my in-laws beautifully treed property, I am reminded of something my father-in law told me a few years back. It seems that a tree cutter stopped by one day, walked the property (4 acres), and promptly offered him in the neighborhood of $3 thousand for 5 or 6 trees on his property. Funny, I thought, don’t they usually charge you to remove trees from your property? This sounded like a beautiful arrangement. But these weren’t just any trees, they were red oak and ash, more highly sought after than your run of the mill pine trees. But that certainly got me thinking.
Demand for lumber has been strong in this country, thanks to a housing and building boom. Will that trend continue into the near future? Maybe, maybe not. We are guessing that it will slow down, but then again, we are not economists. But timber happens to be Plum Creek’s business, and the company owns a whole lot of land.
You might think that Plum Creek Timber is a little too much on the beaten path for our tastes. Afterall, much of the research we do here at Cheap Stocks is on tiny companies most people have never heard of. But we felt compelled to put in our two cents about Plum Creek. You know how much we love land.
Plum Creek owns a vast amount of timberland in the US, 7.756 million acres, to be exact, according to the company's website. Here's the breakdown by state/acre:
Montana-1,301,000
Arkansas-940,000
Maine-928,000
Georgia-896,000
Missippippi-859,000
Florida-578,000
Louisianna-533,000
Wisconsin-514,000
Oregon-285,000
South Carolina-210,000
Washington-161,000
Oklahoma-132,000
West Virginia-115,000
Alabama-103,000
North Carolina-76,000
Texas-50,000
Idaho-39,000
New Hampshire-33,000
Michigan-3,000
Total:7,756,000
How Much land is 7.8 million acres?
I'm glad you asked. If you recall from past postings, one square mile is 640 acres. So 7.8 million acres is 12,188 square miles, or an area 110 miles by 110 miles. Thats a lot of acres, trees, and ultimately, lumber. Don't get me wrong, I'm not suggesting Plum Creek's lumber is worth anywhere near the handful of red oak and ash trees on my father-in laws property I mentioned earlier. But, having some exposure to lumber in your portfolio is not a bad idea.
More than timber
The company estimates that out of its 7.8 million acres, 1.3 million are "higher and better use timberlands" which may have residential or recreational uses.
Enterprise Value per Acre
Based on an EV of $8.7 billion
Acreage of 7.756 million
EV/Acre= $1,121
Other Businesses
Timber accounted for $694 million of the company's 2004 revenue of 1.528 billion
Other revenue was from:
Real estate:$303 million
Manufacturing(wood products):$518 million
Other(natural resources):$13 million
The bottom line
In 2004, the company earned $339 million, up from 2003's $192 million. The company's tax burden is light (just 7.4 % of income in 2004) because part of the company has REIT status. This is a very profitable company.
Conclusion
This company is not a high flyer. Your editor purchased some shares several weeks ago in the $35 range, not expecting rapid price expansion, but the stock is up 10 percent, mainly because of Katrina, and growing demand for lumber. Don't expect that to continue. What you can expect though, is a nice, 4 percent dividend, exposure to timber, a solidly profitable business, and some nice acreage.
*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Price: $38.83
Market Cap: $7.14billion
Enterprise Value: $8.7 billion
Dividend Yield: 3.9%
P/E: 23.5
As I sit writing this week’s column, it’s a beautiful day in western Pennslvania, where we are visiting this weekend. As I gaze out over my in-laws beautifully treed property, I am reminded of something my father-in law told me a few years back. It seems that a tree cutter stopped by one day, walked the property (4 acres), and promptly offered him in the neighborhood of $3 thousand for 5 or 6 trees on his property. Funny, I thought, don’t they usually charge you to remove trees from your property? This sounded like a beautiful arrangement. But these weren’t just any trees, they were red oak and ash, more highly sought after than your run of the mill pine trees. But that certainly got me thinking.
Demand for lumber has been strong in this country, thanks to a housing and building boom. Will that trend continue into the near future? Maybe, maybe not. We are guessing that it will slow down, but then again, we are not economists. But timber happens to be Plum Creek’s business, and the company owns a whole lot of land.
You might think that Plum Creek Timber is a little too much on the beaten path for our tastes. Afterall, much of the research we do here at Cheap Stocks is on tiny companies most people have never heard of. But we felt compelled to put in our two cents about Plum Creek. You know how much we love land.
Plum Creek owns a vast amount of timberland in the US, 7.756 million acres, to be exact, according to the company's website. Here's the breakdown by state/acre:
Montana-1,301,000
Arkansas-940,000
Maine-928,000
Georgia-896,000
Missippippi-859,000
Florida-578,000
Louisianna-533,000
Wisconsin-514,000
Oregon-285,000
South Carolina-210,000
Washington-161,000
Oklahoma-132,000
West Virginia-115,000
Alabama-103,000
North Carolina-76,000
Texas-50,000
Idaho-39,000
New Hampshire-33,000
Michigan-3,000
Total:7,756,000
How Much land is 7.8 million acres?
I'm glad you asked. If you recall from past postings, one square mile is 640 acres. So 7.8 million acres is 12,188 square miles, or an area 110 miles by 110 miles. Thats a lot of acres, trees, and ultimately, lumber. Don't get me wrong, I'm not suggesting Plum Creek's lumber is worth anywhere near the handful of red oak and ash trees on my father-in laws property I mentioned earlier. But, having some exposure to lumber in your portfolio is not a bad idea.
More than timber
The company estimates that out of its 7.8 million acres, 1.3 million are "higher and better use timberlands" which may have residential or recreational uses.
Enterprise Value per Acre
Based on an EV of $8.7 billion
Acreage of 7.756 million
EV/Acre= $1,121
Other Businesses
Timber accounted for $694 million of the company's 2004 revenue of 1.528 billion
Other revenue was from:
Real estate:$303 million
Manufacturing(wood products):$518 million
Other(natural resources):$13 million
The bottom line
In 2004, the company earned $339 million, up from 2003's $192 million. The company's tax burden is light (just 7.4 % of income in 2004) because part of the company has REIT status. This is a very profitable company.
Conclusion
This company is not a high flyer. Your editor purchased some shares several weeks ago in the $35 range, not expecting rapid price expansion, but the stock is up 10 percent, mainly because of Katrina, and growing demand for lumber. Don't expect that to continue. What you can expect though, is a nice, 4 percent dividend, exposure to timber, a solidly profitable business, and some nice acreage.
*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Wednesday, September 07, 2005
A Pineapple Company? Clyde, are you crazy?
Maui Land & Pineapple Co
Ticker: MLP
Price: $33.16
Market Cap: $244 million
Enterprise Value: $255 million
Shares Out: 7.23 million
2004 Revenue: $153 million
2004 Net Loss: $.383 million
So, your editor is not crazy after all. There’s more to this company than the $80 million in pineapples they sold in 2004. Actually, pineapples don’t seem to be a very lucrative business for this Hawaii based micro cap-the segment produced an operating loss of $11.3 million in 2004-and sales were down sharply from 2003’s $100.5 million.
Maui Land operates in two other significant segments, besides the yellow fruit: Resort, and Development. Avid Cheap Stocks readers didn’t have to read past the company’s name in order to understand our interest in this company. You’ve already read past postings about Tejon Ranch (California), St. Joes (Florida), PICO Holdings (Nevada), Avoca (Louisiana), JG Boswell (California), and know our fascination with companies holding land. We’ve been building a portfolio of these over the past few years, and Maui Land is the latest addition.
Resort segment: Kapalua Land Company
Nine Miles of Hawaii Beachfront
Part of Maui Land’s 28,200 acres include 22,800 in West Maui, including Kapalua Resort a golf community, which borders the ocean, and boasts 3 beaches, 2 hotels, 3 championship golf courses, 10 restaurants, and 700+ single family homes and condominiums. Oh, did I mention the 9 miles of beachfront property? This segment had operating revenue of $49 million in 2004, and an operating loss of $1.6 million
Development segment
This segment is responsible for the company’s construction, sales and development activities. Revenue for 2004 was $24 million, operating income was $12.7 million
The Land
Of the company’s 28,200 acres, about 5000 (as best we can tell, this is an estimate) are used in the pineapple business. While it’s difficult to estimate what that land and business are worth, we’ll assume the pineapple business is worth .5 times sales. Based on $80 million in 2004 sales, that would value that segment at $40 million. (Keep in mind, this is a guesstimate, as much as we love eating pineapples, we’ve never attempted to value a pineapple operation before.)
Calculations
Backing out $40 million from the company’s current enterprise value:
Enterprise Value: $255
Pineapple Business: $40
Rest of company: $215
EV/Acre calculation
This is a calculation we’ve grown fond of here at Cheap Stocks. In this case we’ll calculate the EV/acre for the non-pineapple land first:
Rest of Company EV: $215
West Maui Acreage: 22,800 acres
EV/Acre: $9429 (actual)
Alternatively, if we use the entire amount of company acreage, not stripping out the pineapple business, we get the following:
Enterprise Value: $255
Total Acreage: 28,200
EV/acre: $9042 (actual)
Buying Hawaii Property Sight Unseen.
We’ve never even been to Hawaii, let alone seen Maui Land and Pineapple’s property or operation. Nonetheless, we were impressed by the numbers. Nine thousand and change per acre for Hawaii land seems like a no-brainer (Did we mention 9 miles of beachfront property?). But, you need to consider the source. We are crazy about land (in certain cases that is) here at Cheap Stocks. That being said, please consider the following: Maui Land’s sales have been relatively flat for years, and earnings are inconsistent at best:
Revenue/Net income (loss) in millions
2004: 153/ (.383)
2003: 151/ 6
2002: 148/ (5.7)
2001: 166/ 7.6
2000: 141/ .452
1999: 147/ 4.7
We encourage you to do your own research. There is other exposure available to Hawaii land in the form of a publicly traded company, namely Alexander and Baldwin (NASDAQ: ALEX). That’s another company we’ve been interested in over the years, they have some nice land holdings, and a profitable shipping business. But we missed the boat (no pun intended) on that one. Now trading in the $50 range, we passed on it in the teens a few years back. Certainly a more high profile name than Maui Land & Pineapple, and worthy of further research. Keep eating pineapples!
*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Maui Land & Pineapple Co
Ticker: MLP
Price: $33.16
Market Cap: $244 million
Enterprise Value: $255 million
Shares Out: 7.23 million
2004 Revenue: $153 million
2004 Net Loss: $.383 million
So, your editor is not crazy after all. There’s more to this company than the $80 million in pineapples they sold in 2004. Actually, pineapples don’t seem to be a very lucrative business for this Hawaii based micro cap-the segment produced an operating loss of $11.3 million in 2004-and sales were down sharply from 2003’s $100.5 million.
Maui Land operates in two other significant segments, besides the yellow fruit: Resort, and Development. Avid Cheap Stocks readers didn’t have to read past the company’s name in order to understand our interest in this company. You’ve already read past postings about Tejon Ranch (California), St. Joes (Florida), PICO Holdings (Nevada), Avoca (Louisiana), JG Boswell (California), and know our fascination with companies holding land. We’ve been building a portfolio of these over the past few years, and Maui Land is the latest addition.
Resort segment: Kapalua Land Company
Nine Miles of Hawaii Beachfront
Part of Maui Land’s 28,200 acres include 22,800 in West Maui, including Kapalua Resort a golf community, which borders the ocean, and boasts 3 beaches, 2 hotels, 3 championship golf courses, 10 restaurants, and 700+ single family homes and condominiums. Oh, did I mention the 9 miles of beachfront property? This segment had operating revenue of $49 million in 2004, and an operating loss of $1.6 million
Development segment
This segment is responsible for the company’s construction, sales and development activities. Revenue for 2004 was $24 million, operating income was $12.7 million
The Land
Of the company’s 28,200 acres, about 5000 (as best we can tell, this is an estimate) are used in the pineapple business. While it’s difficult to estimate what that land and business are worth, we’ll assume the pineapple business is worth .5 times sales. Based on $80 million in 2004 sales, that would value that segment at $40 million. (Keep in mind, this is a guesstimate, as much as we love eating pineapples, we’ve never attempted to value a pineapple operation before.)
Calculations
Backing out $40 million from the company’s current enterprise value:
Enterprise Value: $255
Pineapple Business: $40
Rest of company: $215
EV/Acre calculation
This is a calculation we’ve grown fond of here at Cheap Stocks. In this case we’ll calculate the EV/acre for the non-pineapple land first:
Rest of Company EV: $215
West Maui Acreage: 22,800 acres
EV/Acre: $9429 (actual)
Alternatively, if we use the entire amount of company acreage, not stripping out the pineapple business, we get the following:
Enterprise Value: $255
Total Acreage: 28,200
EV/acre: $9042 (actual)
Buying Hawaii Property Sight Unseen.
We’ve never even been to Hawaii, let alone seen Maui Land and Pineapple’s property or operation. Nonetheless, we were impressed by the numbers. Nine thousand and change per acre for Hawaii land seems like a no-brainer (Did we mention 9 miles of beachfront property?). But, you need to consider the source. We are crazy about land (in certain cases that is) here at Cheap Stocks. That being said, please consider the following: Maui Land’s sales have been relatively flat for years, and earnings are inconsistent at best:
Revenue/Net income (loss) in millions
2004: 153/ (.383)
2003: 151/ 6
2002: 148/ (5.7)
2001: 166/ 7.6
2000: 141/ .452
1999: 147/ 4.7
We encourage you to do your own research. There is other exposure available to Hawaii land in the form of a publicly traded company, namely Alexander and Baldwin (NASDAQ: ALEX). That’s another company we’ve been interested in over the years, they have some nice land holdings, and a profitable shipping business. But we missed the boat (no pun intended) on that one. Now trading in the $50 range, we passed on it in the teens a few years back. Certainly a more high profile name than Maui Land & Pineapple, and worthy of further research. Keep eating pineapples!
*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Thursday, September 01, 2005
Most Importantly
Our hearts go out to all of the hurricane victims. We pray for those who have lost loved ones, their homes, and at least temporarily, their everday lives. We've had far too many reminders in the past several years just how fragile life is.
Gas Price Optimism
Your Cheap Stocks editor was surprised to see regular gas selling for $3.29 this morning on his way to work,(yes, I do have a real full-time job, as much as I'd like to give Cheap Stocks my full-time attention, but so far no one has offered to pay for the content, and I have several mouths to feed!) at the same station, that just 12 hours earlier was selling it for $2.79. Unbelievable.
But unlike many other pundits I've heard waxing eloquently on the subject, I believe this is a very short-term phenomenon. The longer term outlook (next 20 years) may be a different story as far as oil is concerned, but this is not time to panic. Tell that to Ed Rendell, our esteemed governor, who apparently has mentioned gas rationing in our great state of Pennsylvania. Way to go Ed. Want to create a panic? A run on gas stations? Hoarding? Keep talking.
Our hearts go out to all of the hurricane victims. We pray for those who have lost loved ones, their homes, and at least temporarily, their everday lives. We've had far too many reminders in the past several years just how fragile life is.
Gas Price Optimism
Your Cheap Stocks editor was surprised to see regular gas selling for $3.29 this morning on his way to work,(yes, I do have a real full-time job, as much as I'd like to give Cheap Stocks my full-time attention, but so far no one has offered to pay for the content, and I have several mouths to feed!) at the same station, that just 12 hours earlier was selling it for $2.79. Unbelievable.
But unlike many other pundits I've heard waxing eloquently on the subject, I believe this is a very short-term phenomenon. The longer term outlook (next 20 years) may be a different story as far as oil is concerned, but this is not time to panic. Tell that to Ed Rendell, our esteemed governor, who apparently has mentioned gas rationing in our great state of Pennsylvania. Way to go Ed. Want to create a panic? A run on gas stations? Hoarding? Keep talking.
Sunday, August 28, 2005
A Not So Great Adventure
Six Flags Inc
Ticker: PKS
Market Cap: $670 million
Price: $7.20
Avid Cheap Stocks readers know how much your editor thrives on land related stocks, even those that are indirect plays. There is one company in particular that I’ve followed for years, but could never commit to. For good reason. As it turns out Six Flags Inc has gotten a lot of press lately. But we here at Cheap Stocks, are staying away from this one.
I really wanted to like this company. They own 30 amusement parks. That’s right, 30 cash generating machines. At least I thought they should generate lots of cash-if you’ve ever taken your kids to one of these parks, you’ll know what I mean.
Not this company, though. They’ve lost money year after year—they are usually profitable the second and third quarter each year as this is a seasonal business, but that is not enough to make up for losses the rest of the year. Much of the problem is that the company is swimming in long-term debt to the tune of more than $2.4 billion. That translated into $195 million in interest expense in 2004, down from 2003’s $215 million.
The company’s debt to equity ratio is nearly 4. Not a pretty capital structure. All this translates into an Altman’s Z score that indicates this company may be a candidate for bankruptcy if something does not change.
Enter Washington Redskins owner Daniel Snyder, who last week offered $6.50 per share in a tender offer bid aimed at tripling the stake that Snyder controlled Red Zone LLC has in the company to about 35 percent. That drove shares of Six Flags into the mid $7 range. But Thursday, the company announced that it opposed to Snyder’s plan, and will instead put itself up for auction. Good luck Six Flags. Good luck current common stockholders. We are staying on the sidelines.
If you want exposure to the amusement park arena, there’s always Walt Disney (Ticker:DIS). You may also want to take a look at Cedar Fair LP (Ticker: FUN), a seemingly well run and profitable company paying a dividend. The antithesis of Six Flags?
Real Estate Update
Your editor was at it again this week. If you’ve read about my real estate investing adventures—in publicly traded companies such as JG Boswell, St. Joes, Avoca, PICO, and Tejon Ranch—you won’t be disappointed in our coverage over the next several weeks. Two companies added to the portfolio, one giving exposure to Hawaii, the other to 8.1 million acres of timber in more than 20 states. Stay tuned.
Six Flags Inc
Ticker: PKS
Market Cap: $670 million
Price: $7.20
Avid Cheap Stocks readers know how much your editor thrives on land related stocks, even those that are indirect plays. There is one company in particular that I’ve followed for years, but could never commit to. For good reason. As it turns out Six Flags Inc has gotten a lot of press lately. But we here at Cheap Stocks, are staying away from this one.
I really wanted to like this company. They own 30 amusement parks. That’s right, 30 cash generating machines. At least I thought they should generate lots of cash-if you’ve ever taken your kids to one of these parks, you’ll know what I mean.
Not this company, though. They’ve lost money year after year—they are usually profitable the second and third quarter each year as this is a seasonal business, but that is not enough to make up for losses the rest of the year. Much of the problem is that the company is swimming in long-term debt to the tune of more than $2.4 billion. That translated into $195 million in interest expense in 2004, down from 2003’s $215 million.
The company’s debt to equity ratio is nearly 4. Not a pretty capital structure. All this translates into an Altman’s Z score that indicates this company may be a candidate for bankruptcy if something does not change.
Enter Washington Redskins owner Daniel Snyder, who last week offered $6.50 per share in a tender offer bid aimed at tripling the stake that Snyder controlled Red Zone LLC has in the company to about 35 percent. That drove shares of Six Flags into the mid $7 range. But Thursday, the company announced that it opposed to Snyder’s plan, and will instead put itself up for auction. Good luck Six Flags. Good luck current common stockholders. We are staying on the sidelines.
If you want exposure to the amusement park arena, there’s always Walt Disney (Ticker:DIS). You may also want to take a look at Cedar Fair LP (Ticker: FUN), a seemingly well run and profitable company paying a dividend. The antithesis of Six Flags?
Real Estate Update
Your editor was at it again this week. If you’ve read about my real estate investing adventures—in publicly traded companies such as JG Boswell, St. Joes, Avoca, PICO, and Tejon Ranch—you won’t be disappointed in our coverage over the next several weeks. Two companies added to the portfolio, one giving exposure to Hawaii, the other to 8.1 million acres of timber in more than 20 states. Stay tuned.
Thursday, August 18, 2005
Random Thoughts From Your Vacationing Cheap Stocks Editor
It's been the summer of the vacation for your editor. Two extra weeks due to a job change...relaxing at the Jersey Shore, and becoming surer of a mini real estate bubble...here, anyway.
On Long Beach Island, rentals are down any where from 15 to 25 percent this year. Why? People can't afford, (or don't want to afford) to come here. Home prices are through the roof, and those who bought with the hopes of renting out their new purchase were in for a shock this year. Homes purchased within the past few years can't rent for nearly enough to cover costs. Buyers who stretched themselves in the hopes of renting out their homes for the entire summer at X, were only able to rent for half the summer at Y. We foresee this leading to some quick sales. It's not necessarily a huge bubble about to burst, but perhaps a pricing adjustment.
Oil
For the first time in several years, we did not pre-pay for our heating oil this year. Just seemed high at $2.19 a gallon. It's even higher now, with oil in the mid to high 60's per barrel. Rather than pre-pay, we'd decided to invest the $1000 or so we'd spend into an energy related investment. In this case, the Vanguard Energy Fund. Call it a hedge. Only problem is, you editor still has not gotten around to making the transaction. Maybe when oil hits $55.
St. Joes Corp
After hitting the mid 80's, St Joes has pulled back to the $75 range. Still like and own this one, but have initiated a trailing stop. May have gotten ahead of itself. See the archives for our research on this company.
Zapata, Omega Protein
Interesting WSJ piece on Omega protein (60% owned by Zapata, also a company we own, and featured a few months back)and the battle between sport fisherman, conservationists, and Omega. Looks like limits may be coming for Omega's Menhaden harvest in the Chesapeake. Seems that stripers and other large fish feed on Menhaden. While limiting Omega's Chesapeake catch is not a good thing for the company, that is not the only place they fish. Stay tuned.
It's been the summer of the vacation for your editor. Two extra weeks due to a job change...relaxing at the Jersey Shore, and becoming surer of a mini real estate bubble...here, anyway.
On Long Beach Island, rentals are down any where from 15 to 25 percent this year. Why? People can't afford, (or don't want to afford) to come here. Home prices are through the roof, and those who bought with the hopes of renting out their new purchase were in for a shock this year. Homes purchased within the past few years can't rent for nearly enough to cover costs. Buyers who stretched themselves in the hopes of renting out their homes for the entire summer at X, were only able to rent for half the summer at Y. We foresee this leading to some quick sales. It's not necessarily a huge bubble about to burst, but perhaps a pricing adjustment.
Oil
For the first time in several years, we did not pre-pay for our heating oil this year. Just seemed high at $2.19 a gallon. It's even higher now, with oil in the mid to high 60's per barrel. Rather than pre-pay, we'd decided to invest the $1000 or so we'd spend into an energy related investment. In this case, the Vanguard Energy Fund. Call it a hedge. Only problem is, you editor still has not gotten around to making the transaction. Maybe when oil hits $55.
St. Joes Corp
After hitting the mid 80's, St Joes has pulled back to the $75 range. Still like and own this one, but have initiated a trailing stop. May have gotten ahead of itself. See the archives for our research on this company.
Zapata, Omega Protein
Interesting WSJ piece on Omega protein (60% owned by Zapata, also a company we own, and featured a few months back)and the battle between sport fisherman, conservationists, and Omega. Looks like limits may be coming for Omega's Menhaden harvest in the Chesapeake. Seems that stripers and other large fish feed on Menhaden. While limiting Omega's Chesapeake catch is not a good thing for the company, that is not the only place they fish. Stay tuned.
Subscribe to:
Posts (Atom)