Monday, November 27, 2006

PICO Holdings (PICO) Reports a Strong 3rd quarter

PICO Holdings, which we’ve referred to in the past as the “poor man’s” Berkshire Hathaway, recently reported third quarter sales of $37.2 million, up from last year’s $8.1 million, with net income of $11.8 million versus last year’s $9.2 million loss. The increase in revenue and net income was due primarily to the sale of the Spring Valley Ranch and related water rights for $22 million, or $18.8 million pre-tax. The company originally acquired Spring Valley out of bankruptcy in 2000.

PICO continues to sell off Nevada land, but still has 648,000 acres in inventory, or about 1000 square miles. When we originally purchased PICO, land holdings were about 1.2 million acres, and the company continues to opportunistically convert this land into cash.

One major disappointment has been Hyperfeed Technologies which contributed a loss of $7.8 million for the quarter. Hyperfeed appears to be the only major miscue by PICO since we’ve held shares, and we say good riddance as PICO has come to the realization that this was a terrible investment.

With appeals rejected, the company continues to build the 35 mile pipeline which will annually deliver 8000 acre feet of water from Fish Springs Ranch to the North Valleys of Reno, Nevada. According to PICO, this will be the only source of water to new developments in that area.

Balance Sheet
PICO’s balance continues to be strong, with cash of $115.8 million, and investments (not including land and water rights) of $286 million. Keep in mind, though, that the increase in cash is primarily due to the May 2006 sale of 2.6 million shares of PICO common stock. Also, completion of the pipeline to Reno is expected to cost between $78 and $83 million over the next 9 to 15 months.

We continue to hold PICO shares, and believe that the company is executing well, Hyperfeed aside. Even Warren Buffet strikes out once in awhile.

Previous PICO research:

*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.

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