Boston Omaha's Strong Quarter

Taking a Look at Boston Omaha (BOC), Weekly Activity, & Portfolio Update.

I hope you all had a great Thanksgiving break. I took some time off this week to be with family, which is why you saw fewer articles from me. As I mentioned in our last article, we're going to take a look at Boston Omaha’s (BOC) Q3 2024 earnings. The company releases their earnings in a similar way to Warren Buffett’s Berkshire Hathaway, so it has taken me a bit longer to analyze their earnings closely. But their earnings were pretty much what I expected, maybe even a bit better. So, let’s get into it!

The Quiet Compounder

Despite of what you’ll hear from the impatient investors, BOC had a pretty solid quarter, beating revenue expectations across the board.

Key Financial Highlights:

Revenue Streams:

• Billboard Rentals, Net: Increased from $9.9M in 2022 to $10.89M in 2023, showing a YoY increase of 9.54%.

• Broadband Services: Grew from $8.1M in 2022 to $8.99M in 2023, marking a YoY increase of 11%.

• Premiums Earned: Rose from $2.86M in 2022 to $3.7M in 2023, indicating a YoY increase of 30%.

• Investment and Other Income: Saw a significant increase from $157,484 in 2022 to $554,238 in 2023, showing a rise of 251%.

Total Revenues:

• The total revenue for the company increased from $21.4M in 2022 to $24.5M in 2023. This is a YoY increase of 14.4% for the three-month period.

Total Unrestricted Cash & Investments:

• 2023: $88.5M

• 2022: $67.7M

• Increase: 30.58% YoY

This quarter's results are a reason for optimism, particularly for long-term investors. The company is consistently compounding its growth across various segments, laying a solid foundation for future success. It's important for investors to understand that this is a small company, and building into a large, profitable enterprise will take time. However, the trajectory is clear: they are well on their way to becoming just that. Patience and a focus on the company's incremental progress are key as it continues to develop and expand.

My Take

If you're not yet familiar with Boston Omaha, I'd suggest taking a look at my series of articles on the company for an in-depth understanding. There, I dive into the investment thesis and explore the nuances of its business operations. In essence, Boston Omaha is charting a path reminiscent of Berkshire Hathaway, under the leadership of two Co-CEOs, including Warren Buffett’s grandnephew—a fact that's interesting but should not be the sole reason for investment.

The company's growth is steady and unspectacular, with increasing revenue and premiums across its core business areas. Yet, the undervalued jewel in its crown is Boston Omaha Asset Management (BOAM). It's in BOAM that Boston Omaha makes strategic public equity investments, which significantly contribute to its book value. A prime example of their astute investment strategy is their significant stake in Sky Harbour Group, a company that somewhat operates like a REIT, acquiring airplane hangars and leasing them out. Boston Omaha holds over 13M shares of Sky Harbour’s Class A common stock, accounting for more than 20% of the firm. Following Sky Harbour’s strong recent performance, this investment's value has soared to over $200M, while Boston Omaha's market cap hovers just under $500M. That's just one aspect of BOAM's portfolio.

My point is twofold: Boston Omaha is not just succeeding on the operational front with its 'hidden gems' like BOAM, it's also starkly undervalued in the market today. That's why I've been actively increasing my position. I believe that as Boston Omaha continues to grow and compound its earnings, it will become too significant for the market to overlook.

Addressing the insurance branch, I believe this is also highly misunderstood. General Indemnity, the company's insurance branch, specializes in Surety Insurance. This sector was specifically chosen by the management for its favorable characteristics, including low loss ratios and the potential for reduced production costs relative to premiums. A key metric for this segment is the controlled premium, which has seen a YoY increases, reaching $10.2M. The journey to build this business unit has been described by the Co-CEOs as arduous, stretching over the last three years. They have navigated through periods of fluctuation, what they term the "construction" process, to establish a fully functioning and operational business.

Co-CEO Adam Peterson has highlighted a significant competitive edge in their operations, the vertical integration spanning from agent to underwriter. This integration sets them apart from some fintech and insurance companies that may only handle one aspect of the surety insuring process, thereby enhancing their moat within the industry. Although the insurance branch is not the primary growth driver for the company, it harbors substantial potential for expansion. The reported total addressable market (TAM) for their offerings stands between $6-8B, which far surpasses their current operational scope. Looking ahead, this suggests there is ample opportunity for the company to increase its market share and scale operations within this space.

I’m telling you this, because it’s often overlooked, and they have hit an inflection point. I believe this component with BOAM and Fiber, will be core revenue generators. BOC transcends the conventional boundaries of its diverse business interests, which span billboards, fiber, insurance, and BOAM. At its core, BOC is a company dedicated to the pursuit and realization of long-term opportunities across a variety of industries (which we have seen with some of their strategic acquisitions). With a strategic vision firmly in place, BOC is committed to creating sustainable value. Predicting the exact shape it will take a decade from now may be impossible, yet one thing seems likely: if BOC maintains its current trajectory, it is poised to evolve into a formidable cash-generating entity. For me personally, my conviction remains unchanged, I’ve added an additional 75 shares. This takes my total BOC position to 225 shares.

Weekly Activity (November 20th-24th)

• 80 shares of SoFi Technologies (SOFI)

• 3 shares of Realty Income (O)

• 450 shares of BiomX (PHGE)

Portfolio Update

My investment decisions for NNOX and PHGE hinge on their imminent performance updates. PHGE is poised to release data for its BX004 soon, an event that could significantly sway the stock's value in either direction. This potential for high volatility is precisely why I've kept my stake in PHGE modest. Meanwhile, NNOX is scheduled to report this week. Depending on the outcomes of this report, I'm considering increasing my position, taking into account the company's progress and future prospects.