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Just Published: Issue 38 of the Oddball Stocks Newsletter

We just published Issue 38 of the Oddball Stocks Newsletter. If you are a subscriber, it should be in your inbox right now. If not, you can sign up right here.

Remember that we have made some back Issues of the Newsletter available à la carte, so you can try those before you sign up for a subscription: Issues 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, and 31. We lowered the price of most of our back Issues to $99 from $139. If you are curious about them, there has never been a better chance to try them.

We also published a Highlights Issue in February 2020. The Highlights Issue is available here for purchase for only $59 as a single Issue. If you have been curious about the Newsletter, the Highlights Issue is the perfect opportunity to try about two Issues worth of content (much of which is still topical and interesting) at a low cost.

Don't miss our recent blog posts on Oddball Stocks, some of which contain samples of Newsletter content:

Also, we tweet regularly from the @stocksoddball account on Twitter so be sure to follow us there.

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Life Insurance Company of Alabama Repurchased More Stock ($LINSA $LINS)

We mentioned in November that LICOA's third quarter regulatory financials showed that the company repurchased a huge block of stock at an accretive discount to tangible book value.

We knew that on June 14th, a block of 205,221 LINSA (LICOA non-voting) shares had traded for $24 per share, and that the same block traded again on July 22nd for $32 per share. That amount of stock was a huge percentage (~20%) of the company. But we did not know who had bought for $24 (a $4.9 million purchase) or $32 ($6.6 million). Subsequently, we saw in the regulatory financials (which were released in November) that the company made a $6,576,662 repurchase of treasury stock, and presumed that they bought this block for $32.05 per share.

We have since learned that this block sale was between an investment bank and broker-dealer dedicated to the community banking sector (JWTT Inc.) and LICOA. We have also learned that LICOA bought more stock from JWTT on October 14th: a smaller purchase of $32 per share for 2,131 shares. So it would appear as though the company has an appetite to make repurchases at accretive prices now. (Meanwhile, very little stock has traded since a $24 print in early November. It is unclear whether the market is incorporating news of these repurchases yet.)

The information below is from a portfolio review of LICOA's investments dated as of September 30, 2021. Something interesting is that LICOA has significant unrealized gains in its investment portfolio (market value $11.7 million greater than book value), which comes from fixed income securities.

When looking at LICOA tangible book value per share, it may be appropriate to add back certain reserves in the statutory financials ("interest maintenance" and "asset valuation"), and also make a market value adjustment (less a reserve for deferred taxes) to the investment portfolio, in order to better approximate the GAAP book value. We will take a look at these calculations in the upcoming Issue of the Oddball Stocks Newsletter.

Also noteworthy in the table above is the income on the bond portfolio - about $3.5 million after tax. The company has earned far less than this in recent years. As an insurance company, it takes risk and uses leverage (from policyholder float), only to deliver income and rate of return that is less than the unleveraged income and return on the bond portfolio.

Hence the need for shareholder activism... 

As the minority shareholders (who sued the company in the US District Court for the Northern District of Alabama in 2019) state in their complaint,

The economic purpose of an insurance company, from a shareholder perspective, is to raise funds from policyholders and invest them at a profitable spread. Using borrowed money (“Float”) from the insurance customers as leverage and investing it in a bond portfolio ought to offer shareholders a higher return on their capital. But because the controlling shareholders of LICOA overpay themselves and otherwise waste money, the return on equity that minority shareholders receive is lower than the underlying yield on the bond portfolio. The minority shareholders bear all the risk of an insurance company's financial leverage (where the total assets are approximately three times the shareholder capital) but without the benefit of any increased return.

Those shareholders are currently awaiting a ruling from the Court on the company's motion to dismiss the suit.

Previously, regarding Life Insurance Company of Alabama:

Be sure to check out the Concerned Shareholders of Life Insurance Company of Alabama website as well.

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Paradise, Inc. Announces "Final and Liquidating Distribution," Falling Short of 2019 Estimate

Paradise, Inc. was a net-net idea that Nate posted way back in July 2012 - so seven years ago. At that point, shares were trading at about $18. We posted an update in June 2019 when the company announced plans to liquidate. 

At that time, the company's estimate was that the "aggregate amount of distributions to shareholders as a result of the Asset Sale and Liquidation Plan will be between approximately $18.0 million and $25.0 million, or approximately $35 to $48 per share based on 519,600 shares outstanding".

The company just mailed an announcement (below) that the final distribution will be $4.50 per share. We thought it would be interesting to compare the distributions that were actually received with the estimate that was given in 2019.

The company distributed $10 in September 2019, $4 in July 2020, and $10 in September 2020. With this final $4.50 payment, it will bring the liquidation proceeds to $28.50. That is below the low end of the liquidation value estimate that the company published in its proxy statement for the plan of liquidation. There have been no communications to shareholders explaining the shortfall between the estimate and what has been distributed.

One issue here is that the company terminated its SEC registration in 2019 after approving the plan of liquidation, and has not subsequently provided any financial statements to shareholders. We don't know whether the shortfall was because of lower than expected asset sales proceeds... or higher than expected SG&A costs.

There were a couple of corporate governance concerns with Paradise even prior to the liquidation. On Twitter, "DoubleOak Equity" tweeted, "$PARF announced in Feb18 it was exploring strategic alternatives. Didn't disclose until 12/7/18 that it had entered into a retention agreement effective 10/31/17 with CFO with $75K bonus paid when company sold." In the proxy statement, payments of severance and a special bonus were projected to be an eye-popping $3.2 million - that is over $6 per share.

We've seen in the past with other liquidating Oddballs, there's a temptation for managements to stretch out the liquidation so that they can remain on salary, but this is bad for shareholders because it (obviously) reduces the eventual proceeds due to the overhead cost but also reduces the IRR of the investment due to the delay.

There are some Oddball investors on Twitter talking about this situation, if you're curious for more: (@OzzieCapital, @coleperkins121, @chrisvirnig, @doubleoakequity).

This case is noteworthy because investors tend to take the management liquidation estimates at face value - and they often are indeed conservative.

PARF - Final Liquidating Distribution - December 2021 by Nate Tobik on Scribd

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