by Travis Johnson, Stock Gumshoe | March 28, 2024 12:18 pm
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How much of your portfolio or position did you add to Boston Omaha? The portfolio hasn’t been updated yet. Thanks, Lance
I sold my position in BOC. I believe that in the long term it could be a good investment but I think there are better and more profitable businesses to invest in.
They will need capital to continue investing in Broadbrand with the dilutive effect that this will cause.
It’s never pleasant to take a loss but I thought the company would follow another path.
Maybe I’ll regret it in a few years, as has happened to me several times.
Cheers
Sorry about that. I bumped it up by about 15%
Hey Travis,
I’ve been enjoying your columns for several years now. You manage get me thinking about both big picture trends and detailed financial analysis of specific companies. And you do it in easy to understand language.
I have to ask about your opinion about BOM’s management. You approve of them closing their Asset Management division, but what about the decision to enter that realm a few years ago? Didn’t they demonstrate lack of foresight in not recognizing the challenges inherent to that business?
Finest regards,
I suppose, I didn’t love the asset management plan when they announced it and gave them the benefit of the doubt — and it turned out they were wrong, they couldn’t raise money like they thought they could.
I’m more impressed with their willingness to change strategy when the conditions changed, than I was upset with their lack of foresight about those changing conditions.
I don’t know what changed, whether it was just the higher rates that cut into the appeal of what they were offering and increased the expectations of private equity investors, or simply that there wasn’t enough private capital willing to be tied up for years with a small new fund like they proposed. Probably a combination of those things. I’m glad they didn’t force the issue.
We’ll see how it turns out — this management team is obviously not infallible, but I’ve found their strategy and their decisionmaking to be reasonable, and they have consistently held to their focus on building long-term value… particularly with the broadband business that is going to generate solid cash flow, but won’t look good on the books for a very long time because of the large capital expenditures and the slow customer buildup.
I’ve met the co-CEOs (only very briefly), and been to a few of their Annual Meetings, where they have been open and eager to discuss their strategy and their mistakes, so I might be biased, and might give them more room to operate than I would with managers who I don’t trust as much.
Edit: BOC, not BOM
For BOC at these prices the optionality on SKYH could indeed be quite good. Hard to imagine SKHY doing well and BOC not, because the rest of their business seems to be slowly improving.
Outside of that, my confidence in the co-ceos is a little less than yours perhaps. Their BFR thing never made sense. Don’t need to be a fortune teller to have seen the rise in interest rates and potential impact on RE. I mean, you purchased puts on TLT a couple years ago, right?
Another flag — not exactly red but going in that direction — is their communication. They would typically write an annual letter and did the Buffet thing by headlining it with their performance/cagr. But now that they’ve hit a rough patch in stock price performance (which they themselves say is the best measure of their value!), how are they going to respond? And just in general they are under communicators. They don’t need to necessarily do quarterly calls, but a bit more than what they do. There’s a balance – Chris Mayer talked about this concept of the right amount of communication on a podcast in regards to Topicus.
Also, my big question on BOC isn’t that they won’t be able to eventually do fairly well but the opportunity cost of getting there could be high and thus the cumulative return ends up being very average.
Finally, when you say they generated positive cash flow are you talking about operating cash flow? Because I calculate -15mm cash flow and -35mm FCF.
You might be right, I do have a tendency to stick with management teams when I like the story and the strategy and find them trustworthy. It’s absolutely possible that the opportunity cost of waiting for the business to grow will be too high.
And yes, I meant operating cash flow. The investment cash flow, mostly capex and acquisitions/dispositions, is pretty wildly unpredictable these days.
As for communications, I’m OK with the way they BOC does things, though I do think the Shareholder Letter and the Annual Meeting are important parts of the communication and it will be interesting to see how they address the asset management failure this year.
Surprisingly, the annual meeting will be virtual this time, after the convenience of being in Omaha after the Berkshire meeting last year, but I’ll check it out and see if my opinion changes — should be held on May 1, at 11am EST. Not sure when they’ll release their Annual Letter, presumably that will be before the meeting, but in the past it has generally come out in late April or early May.
Trade Note:
A European holding in the “discounted conglomerate” category dipped below my “preferred buy” price today, so I added to my position. That bumps this up to a full position, about 4% of my equity capital (at cost).
Today I added to Exor (EXO.AS, EXXRF) as it dipped to about US$110/share (~€102). The stock has not moved dramatically, and it could certainly fall further, but as we head into the filing of their Annual Report, which ought to be released in the next couple weeks, the company is still trading at a 40% discount to my estimate of their likely current net asset value (NAV), thanks largely to the recent strength of their two largest holdings, Ferrari (RACE) and Stellantis (STLA).
One of those companies is very expensive (RACE), one is still very cheap (STLA), so we don’ t know which direction those stocks will move in the future but, on balance, buying the two of them and effectively getting most of the rest of Exor’s portfolio at close to no cost remains attractive to me as a long-term shareholder. I started buying Exor when they were offloading Partner Re and looking to put a lot of cash to work, and that money is now mostly allocated, much of it in a variety of healthcare-focused investments, but I have added from time to time as the discount gets large enough to catch my attention. This is intended to be an extreme long-term holding, riding the coattails of a dynastic Italian fortune, though we could always change our minds if management causes us to lose confidence.
That boosts Exor into the top ten holdings of my Real Money Portfolio. More detail in my piece a few weeks ago, when I updated my buy prices, and we’ll learn more when they report their 2023 results later in April. There are not a ton of compelling values in the market right now, but in the last week I’ve now added to both of my meaningful holdings that are sitting below their “preferred buy” price (the other being Boston Omaha (BOC), which is also a “requires great patience” investment). I’ve updated the Real Money Portfolio page to include those recent transactions.
Travis while looking at one of the Companies that I hold today, I looked at the 13G and saw Magnolia Funds and the name of Adam K Peterson. I was honestly a little surprised. The name of the company they showed up as a new owner of is Pure Cycle Water. PCYO.
When they had been talking about BOAM, and building rentals I was thinking there was a little conglomerate (okay, too strong of a word) a little mixed revenue company called Pure Cycle Water that already existed. While interest rates may be against them land values, water and even oil revenues and perhaps royalties they receive are certainly not.
Given that I have a very small number of shares of BOC and considerably more shares of PCYO, I thought maybe you could lend some insight into whether there is any crossover. I guess my understanding is that Magnolia owns Adam’s portions of BOC and some other investments, not the other way around.
Curious about your thoughts regarding this . Maybe take a look at the company. I think it’s overvalued but I also think they are a very, patient company, with land, water, relationships and that’s one of the few areas of the front range that hasn’t been built out. Their financials are lumpy because of how they get re-imbursed for their infrastructure reimbursements.
Interesting, thanks — will take a look. Magnolia still has a handful of non-BOC investments, including a couple holdings that are larger than their BOC holdings, I think because they’ve distributed a lot of their BOC shares to Magnolia shareholders over time, though I don’t remember the details. Rozek and Peterson both came into this as hedge fund managers, and I think Alex Rozek’s fund, Boulderado, did get completely would down, but Magnolia was larger.
According to the 13G/D Magnolia became the one of the largest shareholders of PCYO in January and I believe the largest single shareholder in February when they pulled ahead of Blackrock.
I think there could be some synergies there but IMO this is a multi decade opportunity of growth and repeating income unless it gets sped up either internally or externally. (Both of which are possible)
In terms of timeline the PCYO CEO was also going to do some thing in Chicago. They gave weather as an excuse (Trust me you can fly out of DIA under any weather condition, that’s what it was built for)
That investor event was cancelled and never re-scheduled. Magnolia has 7.6% of the company.
It looks tiny currently a 200 million market cap but I’m a Colorado Native and well If you were going to slowly compound a play of complementary and likely appreciating assets and services with opportunities for stable growth for decades… Well this is where and when you would start.
Interesting one, thanks — looks like they report next week. I’ll do some reading.