Small Agriculture Heats Up
As a value investor, I've been long fascinated by companies that own land, primarily the smaller ones that are not well-known. The combination of real assets, namely land that is used to grow crops or support livestock can be a powerful one, especially in this economic environment.
Value investors rarely expect quick results after taking a position in a new discovery; sometimes it takes years for a situation to play out and for value to be realized. That's if it ever happens at all. But in the case of small agriculture names, things have been heating up in the month since I wrote that year-end column.
The biggest news involves Fort Myers, Fla.-based Alico(ALCO) ), which grows oranges primarily used for orange juice, grows sugarcane and other crops, produces beef cattle, leases land and also has small sand and rock mining operations. Alico owns 130,400 acres, or 203 square miles of land primarily in Hendry County, Fla.
Shares are up about 90% in the past year, and 22% in the past month, but about half of that recent gain occurred Tuesday, after Atlantic Blue Group , which owns 50.6% of Alico, informed the company of their intent to explore the sale of their entire stake in the company to a "strategic or financial buyer." In a 13D filing, Atlantic Blue Group also "suggested" that Alico get on board and consider selling the entire company in cooperation with Atlantic Blue. In response, Alico's board of directors has formed a special committee to explore this issue.
It's difficult to say what Alico might be worth in a transaction. Shares traded above $60 per share at one point, but that was more than six years ago. Packages of assets such as the one owned by Alico don't come up for sale very often, so it will be interesting to see this play out.
With an enterprise value of $356 million, and 130,400 acres of land, Alico currently trades at $2,730 on an EV/acres basis. That's a ratio that I use, in cases where companies own substantial land, to get an idea about how the market is valuing the company, based only on the land. It's not in any textbooks, and you won't read about it anywhere else; it's a homegrown calculation used for perspective only, and it ignores the potential value of any assets besides land.
The other small agriculture names mentioned in my earlier piece are also off to decent starts since year-end. Mini-conglomerate PICO Holdings (PICO) , which has interests in land, water and canola oil processing is up about 9% in the past month, as is Argentine farming giant Cresud (CRESY) . Meanwhile, Limoneira (LMNR) , the largest avocado grower in the U.S., and one of the largest lemon growers, is up about 17%.