Should Investors Be Worried About Boston Omaha? (Part 2)
Should Investors Be Worried About Boston Omaha? (Part 2)
Taking a Look at Boston Omaha's (BOC) Annual Shareholder Letter.
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As promised, I told you I would have part 2 of my thoughts regarding Boston Omaha’s (BOC) shareholder letter. After reading the annual letter, I felt more at ease moving forward with Adam at the helm. But the letter did highlight several positive points, and it was a relief to find no new surprises, especially considering the recent CEO step-down and BOAM shutdown.
The performance of their primary segments fiber, billboards, insurance, and investments, specifically Sky Harbour, gives me confidence. I had initially expected these traditionally boring segments to grow very slowly but steadily, compounding over many years. Surprisingly, the compounding effect is happening faster than I anticipated. Although it’s not the explosive growth seen in the tech world, the numbers are healthy and growing. Each of these investments by BOC has proven to be worthwhile and valuable. It looks like their fiber business his due for heavy growth in the coming years as well.
While securing significant external funding for BOAM would have been ideal, I appreciate the company's transparency in admitting that the scaling did not go as planned. Initially, this announcement threw everyone off, acting like a curveball at their annual results. However, now that we have more clarity on the operation, it’s a positive sign and feel better with this decision.
Adam also highlighted the elimination of BOAM's expenses, and the costs associated with Rozek, which will immediately boost cash flow. While it seemed odd to tout the expense savings from Rozek since everyone already assumed this, a cut to BOAM will be reflected in their cash flows. With Adam now in charge, it appears expenses across the board will be thoroughly examined to determine whether they are necessary.
My expectations going forward, with cutting expenses, we will see a decent uptick in FCF in the near term. Adam's focus is exactly where it should be, improving the main wholly-owned businesses, maintaining tight expense control, and streamlining BOC by divesting lower-return ventures to free up cash. Over the next year, my focus will be on their fiber business and Sky Harbour investment. Many seem to overlook the significance of their stake in SKYH, which has been performing exceptionally well. As a low float stock with effective business execution and minimal competition, SKYH could be the hidden gem for BOC. This success could enable BOC to accelerate their compounding strategy through capital gains, repeating the process and potentially becoming a powerhouse in their investment segment.
Additionally, a noteworthy change that investors may have missed in the letter is the company's shift in their PR strategy. They appear to be moving towards a more advantageous approach by providing quarterly updates instead of just cold earnings releases without commentary. This change should work in their favor, addressing past shortcomings in communication.
Overall, I am optimistic about BOC’s future, but I will hold off on adding to my oversized position until I gain more confidence in Adam’s leadership skills.