For the uninitiated, this is a company that is extremely secretive and refuses to release financials to shareholders without a signed NDA. When this happens it’s usually the case that management is either stealing outright from shareholders, or trying to hide an enormous amount of value.
The company owns a money losing factory in Tennessee, interest in a building in Cincinnati, and timberland in Michigan. They also own a sizable amount of marketable securities which dwarf any other asset on their balance sheet. At the end of 2016 they had $139m in marketable securities, compared to $5m in other assets.
In 2016, the company earned $1.6m, or $1.77 per share, up from $1.235m in 2015, or $1.35 per share. There are 1,999,512 shares issued and 911,534 shares outstanding. Comprehensive income, which includes gains from their marketable securities, is significantly higher at $18m in 2016 or $19.73 per share.
The majority of the company’s marketable securities primarily consist of PNC and USB stock.
In the early 2000s a shareholder requested, and received a breakdown of their portfolio of security holdings. A friend recently went through and updated those old holdings with their 2018 values to include splits and dividends. As you can see from below, just the security holdings below are significantly more valuable than the company. It's also worth considering why Vulcan isn't considered an investment company, and regulated as such considering the majority of their value is public stock investments. (hint, any SEC regulators reading this, and I know that some do, please take a look?).
| Utilities | Shares | Adj Shares | Total Dividends | Share Value |
| Vodafone Airtouch PLC (Symbol: VOD) | 20016 | 16,027 | $ 573,130 | $ 478,235 |
| Verizon (VZ) shares received in VOD spin 2/24/14 ratio .263 : 1 | 4,215 | $ 40,464 | $ 209,359 | |
| Verizon (VZ) | 32814 | 36,608 | $ 982,960 | $ 1,818,319 |
| IDARQ spin-off 11/20/06 | ||||
| FRCMQ spin-off 4/01/08 | ||||
| FTR spin-off 7/02/10 ratio .24 : 1 | 8,786 | $ 29,747 | $ 74,329 | |
| Bellsouth (now AT&T) (T) | 77904 | 103,222 | $ 2,090,000 | $ 3,612,770 |
| acquired 1/3/07--as of 12/29/06 dividends received, 1.325 shares of T | 77,904 | $ 239,170 | $ - | |
| Cincinnati Bell (CBB) | 214100 | 42,820 | $ - | $ 650,864 |
| Convergys (CVG) | 182000 | 182,000 | $ 329,420 | $ 4,317,040 |
| Duke Power (DUK) | 25000 | 14,313 | $ 571,310 | $ 1,119,596 |
| FPL Group (now NextEra Energy) (NEE) | 32375 | 64,750 | $ 2,130,000 | $ 10,500,508 |
| SBC Communications (now AT&T) (T) | 109982 | 109,982 | $ 2,620,000 | $ 3,849,370 |
| Qwest Comm. (now CenturyLink) (CTL) | 15231 | 2534 | $ 45,435 | |
| FairPoint Comm. (Verizon spin) (now Consolidated Comm.) (CNSL) | 468 | $ 5,157 | ||
| Frontier Comm. (Verizon spin) (FTR) | 8214 | $ 69,490 | ||
| Enbridge (Spectra Energy (Duke Power spin)) (ENB) | 12300 | $ 361,497 | ||
| Financial | ||||
| PNC Financial (PNC) | 659090 | 659,090 | $ 17,530,000 | $ 95,574,641 |
| U.S. Bancorp (USB) | 783441 | 783,441 | $ 10,810,000 | $ 39,501,095 |
| Other | ||||
| California Coastal Communities | 447 | 447 | $ - | |
| Prudential Financial (PRU) | 259 | 259 | $ 27,749 | |
| Principal Financial Group (PFG) | 6165 | 6165 | $ 376,373 | |
| MM Companies | 100 | 100 | $ - | |
| Piper Jaffray (U.S. Bancorp spin 12/31/2003) (PJC) | 7834 | 7834 | $ 647,480 | |
| Grand total | $ 37,946,201 | $ 163,239,308 | ||
| Per share | $41.63 | $179.08 |
What's even more interesting is how I obtained the company's financials last year. The sister of the Chairman sent them to me in an unmarked envelope. No NDA, no description, just raw financials.
Maybe there is some discord in the family and some of the siblings want something to happen? Who knows.
What stands out when you look over the financials (link here) is that this company needs to dump their Tennessee operations. The company loses money before dividends primarily due to their manufacturing subsidiary. A few years ago I spoke to a shareholder who noted that it's been a few decades since they made money on manufacturing. Just think of all the money incinerated from that factory, it's mind-numbing.
But beyond the ball and chain hanging around this company's ankles the rest of their assets are extremely valuable.
As a friend put it, (paraphrase) "A company like this is like buying gold in North Korea, it has value, but will you be able to get it out?" Now that North Korea is opening up it's possible to say that anything can happen. Maybe Vulcan is next!
Disclosure: Long a single share
VULC is worth more than just the value of its stock portfolio. The company owns 14,000 acres of timberland somewhere in the Upper Peninsula of Michigan, which I value at $1,000 an acre, or $14 million.
ReplyDeleteThough the factory in Tennessee loses money, I think the land has value, as it's close to a state university, and the city of Clarksville is growing fast. In fact, Clarksville may become the fourth largest city in Tennessee as early as 2020 (see https://www.newschannel5.com/news/clarksville-sees-major-growth ). Let's say the land (about 32 acres) is worth $3 million.
Many people forget, when valuing PNC stock, that PNC owns 22% of Blackrock, a stake worth $18.2 billion. So PNC's true P/E ratio is lower than it appears.
Also, I think it's only reasonable that whatever is left of the dividends that VULC receives on its stock portfolio, after the Tennessee factory loss, deserves some sort of multiple. By my calculations, VULC should receive over $4/share in dividends this year, before accounting for the loss from the Tennessee factory.
The $17 million for the Michigan and Tennessee land value, adds $18.65/share to the value for VULC shares. So the total value for VULC is close to, if not more than, $200/share, in my opinion.
How do you know they did not sell any of those holdings since the early 2000s?
ReplyDeleteThose with continual access to annual reports confirm the holdings have been stable, and growing in line with this sort of growth.
DeleteThis is the age old question, what is it worth?
ReplyDeleteI got all kinds of these things. I owned a 5% stake in an LLC a couple years back. They got a new board and basically implied that the company would no longer distribute anything as they were buying competitors. It had a PE of 5, no market to sale and well, they bought out someone so had to offer it to everyone and I sold all but enough to get the K-1, each year, I'd have had to pay about 30K in taxes, yea, they now do 80M in sales but eacxh year I pay their taxes so the management can get higher salaries
Here we are with VULC....$1000 per acre in the UP BTW might be a little heavy, depending on where they are too, KEWL probably holds the minerals....that being said, quite clearly there is no incentive to do anything here, sort of like a company on auto pilot....managers are...waiting for....? Even Warren Buffet occasionally rotates portfolio, keeping a couple of those forever and hold like Frontier....wow......Garden City Company has the same problem but they only have 4 stocks. A couple they have had since the Coolidge administration so capital gain is huge like 100%......but even they sold Union Pacific this year....I don't own VULC, thought about it, 1% divvy doesn't seem enough and well right now I'm not
It boggles the mind as to why they haven't closed a money-losing division down after losing money for so many years. Any idea why that is the case?
ReplyDeleteGood write-up on a basically unknown value stock with no debt and a huge securities portfolio. I agree that you pay 55 cents on the dollar and any the other companies trading at such an intrinsic discount are long-term land bank type plays or else they have huge problems. It is a hassle to get the financials from the company but it is worth it.
ReplyDeleteNate, interesting article. Thanks for the link to the financial statements.
ReplyDeleteYou should also check Kansas city life financial. Kcli. You can pick up shares that trade for $40 and book value for its insurance operations is around $70
Could this be a money laundering tool I wonder? Otherwise why maintain a money-losing front, pretend it is a manufacturing business and not disclose basic information? Perhaps I am just craven, but this sounds seriously shady to me.
ReplyDeletehttps://www.otcmarkets.com/stock/VULC/news/FOR-IMMEDIATE-RELEASE?id=206645
ReplyDelete