Alico Has Got Large Tracts of Land

• ByJonathan Heller, RealMoney Contributor
• On 2:00 pm EDT, Wednesday June 10, 2009

As fellow deep value disciple Tim Melvin noted a couple weeks ago that under-followed and relatively unknown Florida agriculture and land management company Alico is beginning to look interesting. The Labelle, Fla. based company owns about 135,500 acres of land in Central and Southwest Florida in Collier, Glades, Hendry, Lee and Polk counties. That's a considerable amount of property -- nearly 212 square miles, or an area of 14.5 miles by 14.5 miles, which is more than 3 times the size of Washington, DC.

Alico's primary revenue comes from its agricultural operations, which include sugar cane production (9,110 acres in 2008), citrus (10,582 acres), corn (944 acres), beans (909 acres) and sod. The company also produces beef cattle, feeding cattle and replacement heifers. At year-end 2008, the herd was more than 10,000 strong. The company also has a 526 acre riverfront mine in Glades County Florida, and a small real-estate development operation.

Revenue for 2008 totaled $116.4 million -- more than 94% from the agricultural business -- down 11.8% from $132 million in 2007. The company earned $4.7 million or 76 cents per share vs. a loss of $1.82 in the prior year. The bottom line from the latest reported quarterly numbers looked decent. Revenue fell 32% from the same period last year, but the company still earned $2.1 million or 28 cents per share. But these results included a $7 million settlement payment from a vendor, without which the company would have been in the red for the quarter.

I never expect consistent earnings from companies like Alico and would not own them under such a premise. It's the assets that matter; in Alico's case, the primary is being 135,500 acres of land. With a current enterprise value (EV) of $260 million, EV/acre works out to just over $1,900 per acre. I use that only for comparative purposes and not as an estimate of the actual value of the land. That calculation also ignores other company assets, including 10,000 head of cattle, buildings, equipment and other inventories and receivables.

For its part, the balance sheet also looks decent. As of the end of March, Alico had $29.5 million in cash and short-term investments on the books, or $4 per share, plus another $5.2 million in long-term investments (primarily auction-rate securities). There is some debt: $5 million in short-term notes payable and $83.6 in long-term notes payable, primarily a revolver at 3.125% maturing in August of 2012 and a term note (6.79%) maturing in September 2018. The company did pay down about $50 million of the revolver during the second quarter and amended the terms.

The state of Florida land may still be tenuous, but company's such as Alico are beginning to look very interesting. Shares, which traded as high as $65 in July of 2007, can now be had for less than $27 -- 46% below the 52-week high. Alico currently yields about 2% after cutting its quarterly dividend from $0.275 to $0.1375 in March.

One situation to keep an eye on is the recent default by Ginn Companies related to the purchase of a 4,538 acre parcel of land next to Florida Gulf Coast University from Alico's Alico-Agri subsidiary. Alico should recover most of the property (it appears as though Ginn will hold onto 399 acres), but a receivable in the amount of $7.1 million ($52.3 million balance on the note minus $45.2 million in deferred revenue) will be removed from the books.

Also, Alico has fewer than 7.4 million shares outstanding, about 51% of which are controlled by Chairman John Alexander. While heavy inside ownership is not necessarily a negative, it certainly can be (see my recent piece on Tootsie Roll) and Alexander has reportedly nixed company buyout offers in the past, some at a substantial premium. Furthermore, average trading volume is on the low side at about 15,000 shares per day.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Alico to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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Know What You Own: Other farm products companies include Archer Daniels Midland, Bunge, Fresh Del Monte, Cal-Maine Foods and The Andersons. For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.

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