Why I'm Buying This Mini Conglomerate
Taking a Look at Boston Omaha (BOC).
Today’s Newsletter is Powered by The Bear Report!
The Bear Report is a YouTube Channel dedicated to offering unbiased, bi-weekly analysis of companies with potentially bearish outlooks. Their mission is to equip both bears and bulls with comprehensive information, fostering an understanding of all facets of a business's investment thesis.
Embracing open-mindedness is crucial for any investor, whether bull or bear. Recognizing the importance of seeing both sides of an investment is what distinguishes the great investors from the merely good.
By subscribing, you'll gain access to bi-weekly, in-depth presentations on publicly traded companies, complemented by a variety of concise, short form videos.
You can subscribe below here:
If this has issues connecting to their channel, simply search @TheBearReport in the YouTube search bar.
Significantly Undervalued?
For those who've been following my insights, you're well aware of my keen interest in Boston Omaha (BOC). The timing couldn't be better to look into this conglomerate's potential. As the company's diverse business sectors continue to grow, the current valuation presents an enticing opportunity to invest in what appears to be a highly promising venture at an attractive price.
Historical Context: My previous articles have uncovered BOC's true potential and forecast of future growth avenues. The company has not only sustained its growth across all its operational segments but has also seen its stock price unjustly decline, creating a unique opportunity for significant returns at the present valuation.
Business Model Exploration: BOC operates across four primary industries—billboards, broadband, insurance, and asset management. This selection isn't arbitrary; the stability and high margin of these sectors were strategic choices by the founders, leveraging predictable cash flows. The company's annual letters offer profound insights into their investment perspectives and organizational vision (highly recommend referencing these).
Revenue Trajectory: Far from ordinary, BOC's revenue growth has been remarkable. From generating under $1M at the end of 2015, it reported close to $100M over the last year. This growth is a testament to the company's effective strategy, as detailed in their latest 10-Q report.
Segment-Specific Insights
Billboards: BOC has identified and is exploiting multiple growth avenues in the billboard sector, including technological advancements and strategic land purchases to mitigate lease expenses. Compared to industry counterpart OUTFRONT Media, BOC's strategic land acquisitions and diversification into digital displays and 5G equipment hosting on billboards stand out as innovative revenue and growth strategies.
Broadband: The company has seen rapid growth by acquiring smaller providers and aims to integrate broadband services into other business ventures, notably its Build for Rent project, enhancing revenue potential.
Insurance: Embracing the strategy of utilizing insurance float, BOC has expanded its insurance operations nationwide, leveraging premium collections to invest in lucrative short-term securities.
Boston Omaha Asset Management (BOAM): BOAM is responsible for managing the investment portfolio of BOC. This includes making strategic investments in various sectors and managing long-term assets to optimize the company's growth and profitability. This segment plays a crucial role in Boston Omaha's overall investment strategy, contributing significantly to its financial health through both realized and unrealized gains. Since its inception in 2015, BOAM has generated $90M in profit, with the value of unrealized gains surpassing this figure. This indicates that BOAM is engaged in identifying and investing in opportunities that have the potential to yield substantial returns over time, aligning with the company's broader focus on high-margin, predictable cash flow businesses.
Detailed Valuation
A critical component of understanding BOC's intrinsic value lies in assessing its assets through the lens of the price to book (P/B) ratio, a metric strongly advocated by both the company's founders. This approach effectively contrasts the stock's market price against the net assets owned by the company, providing a tangible measure of its financial standing and potential under- or overvaluation.
To paint a clearer picture of BOC's financial landscape, and to show who great of capital allocators these Co-CEO’s are, we will analyze the estimated current values of all its long-term investments (under BOAM), distinguishing the conglomerate's adeptness at asset appreciation:
Sky Harbour Group (SKYH): BOC owns just over 13.1M shares in this entity (As of February 15th), which equates to an impressive $175M+ stake.
Boston Omaha Build-For-Rent: Recent filings peg this venture's valued over $27M+, underscoring its lucrative growth trajectory.
Crescent Bank and Trust: Valued at approximately $30M, this reflects a substantial appreciation from the initial $19.1M investment, showcasing an adept investment strategy.
24th Street Asset Management: Reflecting a recent shift to full ownership by BOAM, this segment's value is now assessed at over $120M+.
Logic Commercial Real Estate: Estimated well over $1M+, significantly surpassing its recorded value, highlighting potential undervalued assets.
Breezeway: Valued around $250K, this estimate suggests a conservative yet strategic valuation by the company.
Collectively, these valuations propel BOC's long-term investment assets to somewhere between $350M-$400M, starkly higher than the last reported $173.2M on the balance sheet. Also keep in mind now, the market cap of BOC is in the $400M’s (???). So, adjusting for this accurate asset valuation, BOC's total common equity would escalate from $541M to an impressive range $715M-$765M. Given the company's 31.3M outstanding shares, this revision furnishes a book value per share somewhere between $22-$24.5, enhancing the investment thesis by evidencing a more profound undervaluation than initially perceived.
This is precisely why I've been proactively investing in this company. Apart from BOAM, all its divisions are expanding at a commendable pace, appropriate to the company's scale. Despite its low profile, this enterprise exhibits steady growth—it's an ultra-boring company, that also happens to be an ultra-long-term investment. Many bears/inexperienced investors fail to grasp the core strengths of this business, setting unrealistic benchmarks and overlooking its potential due to its understated approach. However, the consistent growth and the management's exceptional capital allocation skills (quite impressive honestly) signal its potential as a significant player in the long run. It demands patience—a virtue not everyone possesses today—but for those who do, this company stands out as a worthwhile focus of attention. Don't be misled by skeptics; this company merits a closer look, promising rewards to those willing to wait.