St. Joe Corp. After doubling my position last week on news, this is now half of my portfolio. It is a classic asset value investment, even though it is up about 50% in the last year. It now trades at 90 (52W hi 116, lo around 60) I think its worth well above 120. A little homework on this one in the next few weeks would be well worth your time.
The valuation is the key, and I will post that at the end. St. Joe was formerly St. Joe Paper, a sleepy company controlled for years by a DuPont Trust. The Company amassed a collection of assets in Florida 50 years ago, then never did anything with them. Operating businesses and literally 3% of the land in the state.
The first thing to understand it that this is not a paper company. Most operating assets, including the paper business, were shed two years ago. The second thing is that it is no longer a sleepy asset play. The controlling shareholder announced in May of 96 that it wanted to realize the value of their holdings. They shed the operating businesses and dividended the cash to shareholders ($10 dividend in January 97) Then they brought in new management. The new CEO came out of Disney (a company which knows something about Florida real estate), and proceeded to replace the entire management team with Wall Street savvy real estate guys. He has also been purchasing and partnering with prominent Florida developers.
You could say that's all old news, though I don't think its in the price yet. But now there is a new catalyst. This is a $3 billion company with no Wall Street coverage. The stock is so illiquid that only a few institutions (including Michael Price) own it. So what makes that change? Last week the company announced that DuPont is going to sell a chunk of its 75% interest in order to diversify its holdings. There will also be a 3:1 split. What this does is increase liquidity for both institutional and retail investors. The DuPont sale is also big enough to require the help of Wall Street. Three of the most respected firms on Wall Street (Morgan Stanley, Merrill and DLJ) are underwriting the deal. The have big sales forces and research influence.
OK, here's the valuation. I'll start with the most certain.
1. $19 a share in cash. No debt.
2. SJP owns about 50% of Florida East Coast, which is publically traded. A little math shows that this trades for $15 per SJP share.
3. An agreement was just announced to sell a parcel of otherwise useless land for about $4 a share.
OK, so we've got what, $38. The stock trades for $90. Nothing to get excited about so far.
4. St. Joe owns roughly 900,000 acres of timberland in Florida. There is much argument about what this is worth, but the figures seem to center around about $1,000 an acre. That's $30 a share.
Now we've got $68. That leaves $22 to account for. What's left is the fun part. St. Joe owns 50,000 acres of development land, all in Florida. Much of it is on the panhandle, but they also own urban land. Nobody really knows where it all is or what it all is, but its not worthless swampland. For example, they own miles of prime beachfront on the panhandle and hundreds of miles of inland waterfront property. I just found out they own at least 6 underdeveloped blocks in downtown Miami.
Multiply the $22 of the stock price attributed to the land by 30 million shares. That gives you $660 million. Or $13,000 an acre. Then look at transactions for development land in the state of Florida. I don't think you are going to find many for $13,000 an acre. The ones I have seen are $80,000, $40,000, $120,000... Do your own homework, but this is the story. Florida has among the best real estate demographics in the country, and we are at the point in the real estate cycle where quality land prices are about to take off. And St. Joe is the largest landowner in the state and just starting to milk it.
If you have access to AOL, go to the Motley Fool board for St. Joe and you will find the best quality research in existence on this stock. Get the financials and check my facts. If you don't have AOL, contact me privately by e-mail and I would be happy to send you some key posts from the last year as this story developed. You will be able to see the dates on the posts and check against a news history and chart to see that these were not written with 20/20 hindsight.
If I had to put a number on this now, I would say $150. I prefer to think of it as worth at least $120 - possibly much much more. I would welcome a discussion from the many knowledgeable, and always skeptical, investors on this board.
Jim |
