Text of 5/14/01 bullish Barrons piece on Alico.
MAY 14, 2001
Worth the Wait
By Rhonda Brammer
"It's the most undervalued value stock I have ever seen." That uncompromising
rave of a phrase leaped out of an e-mail message that found its way to us recently
from a long-time Barron's reader, a manifestly sensible chap with an analytical and
nonconformist bent, as evidenced by a resume that includes teaching mathematics
at the University of Michigan and going on record long before the fact that Y2K
was a bunch of hooey.
What also snared our attention, we blush to confess, is that he cited in rather
astonishing detail an article we had penned on an obscure Florida land company
more than a decade and a half ago.
Indeed, we experienced a bit of a rush to think our scribblings had lasted so long
and been fated for something grander than the immediate papering of bird cages or
the peremptory wrapping of fish.
Then we got to this rather melancholy sentence: "The stock has not moved in 15
years."
Not moved? In 15 years?
On this score, we feel compelled to
mention that in the three years or so
following our story, Alico shares did
slowly climb from a split-adjusted
$15-$16 a share in October 1985 to a
high of $39 in April 1989. But over the
long haul, our correspondent is
absolutely right: the stock has done
nothing. But it should have -- that's the
real burden of his communique.
And the reason the stock, by all rights,
should be measurably higher is that, to
use his phrase, land values have
"exploded" in Alico's neck of the
woods (our correspondent now lives
in Fort Myers, not far from Alico's
official digs) and the company has
begun selling acreage far more
aggressively than it ever has in the past.
Alico (pronounced A-leek-o) is short for the Atlantic Land & Improvement Co.,
which held non-railroad properties of the Atlantic Coast Line. The company now
boasts a stock-market value of $130 million and bills itself as an agribusiness.
Its annual report features bucolic photos of orange groves, fields of sugar cane
and cattle grazing on open range, tended by cowboys on horseback. But the
company's real value is not in the commodities it produces but in the land it owns
in southern Florida. All told, Alico lays claim to 141,530 acres -- or more than 220
square miles -- in Polk, Hendry, Collier and Lee counties.
And all that acreage is carried on the company's balance sheet at an average of
less than $230 an acre.
What's it really worth? Well, that depends, of course, on which acres you're
talking about. Some of them are timberland, some pasture, some citrus groves.
Other parcels lie adjacent to Interstate 75 and surround Florida Gulf Coast
University.
In 1995 and 1996, Alico sold very small chunks of property at very modest
prices. The tantalizing part about these sales was how much profit was booked
because the carrying value was so low.
In July 1995, for example, Alico sold 5,801 acres of undeveloped land to the
Nature Conservancy for $8.3 million, or $1,430 an acre. Alico's cost: $68 an acre.
In December 1996, another 21,700 acres were sold for preservation, this time to
the South Florida Water Management District, for a mere $529 an acre -- Alico's
cost, $9 an acre.
But such sales, despite the neat profit they yielded, didn't offer a clue as to the
potential value of Alico's real estate. For that, you have to go back to 1993, when
the company made an eleemosynary gesture that underscored the truth in the
adage about doing well by doing good.
Specifically, Alico donated the land where Florida Gulf Coast University now
stands. Subsequently, when it sold even tiny parcels in adjacent areas, the price
tags suddenly took on amazing heft. For example, a mere 1.25 acres sold in
November 1997 to SouthTrust Bank fetched $350,000.
In September 1999, Alico sold 1,230 acres around the university site for $16.5
million, or $13,415 an acre, and another 488 acres in August 2000 for $10.6
million, or $21,721 an acre.
Alico has yet to record all the gains from these transactions, because it gets
payments over four years. Its real-estate sales are accounted for under the accrual
method; hence, a profit is recognized only when payment is received.
Right now, Alico's stated book value is just under $100 million, or $14 a share.
Land, carried at an average cost of $230 an acre, makes up $4.60 a share of that
book. So the stock, which closed Friday at $18.55, looks incredibly cheap at 1.3
times that understated net worth. (In fiscal 2000, ended August, the company
earned $2.01 a share, including land sales, and in October it paid a dividend of $1.)
But there's more. In its 10-Q for the fiscal quarter ended February 28, Alico
discloses additional contracts for land sales that amount to $117 million, or
another $16 a share. To be sure, that amount needs to be discounted, because
most of the money will be received over 10 years. But that hardly diminishes the
size and significance of the deals.
In January, to illustrate, Alico agreed to sell 4,500 acres -- again, close to the
university -- for $112 million, or $24,890 an acre. (The contract calls for closings
on 450 acres a year for 10 years, beginning in fiscal 2003, ending August.) And
another contract totals $5 million for 44 acres, or more than $113,000 an acre.
Okay, okay, we know: Even the most steadfast soul on earth might find his
patience worn just a mite thin holding a mostly immobile stock for 15 years. All
we can say is that given the fact that the company is now actually selling some
land and given the prices it's getting for it, a buyer may not have to wait another
15 years for patience to pay off.
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