Sunday, September 09, 2007
more bargain hunting
I had said that 2007 results would be a wildcard. The stock was at $2.75, "probably a good price, but not cheap enough."
During 2006 we began to realize the benefit of our capital investment, as our total revenue for the year quadrupled to $16,329,340. That growth continued in the first six months of 2007, as our revenue grew to $13,049,083, a 157% increase from the $5,084,449 in revenue realized in the first six months of 2006. Based on results to date and firm orders already in place, we expect that in 2007 we will substantially exceed the revenue level we realized in 2006.Ok, I believe you. I have no idea how much they will continue to grow. It's probably worth at least $4. The current price is $3.65.
Berkshire Hathaway (BRKA, BRKB, sec) Not exactly a pink sheet stock. Berkshire has been continuing to buy Burlington Northern (BNI), including call options (ok, that's actually National Indemnity buying them, not sure is Lou Simpson controls that part of the float). It's one of those long term trend plays. Q2 results: 1.54 equivalent A shares. Needless to say, the balance sheet is rock solid. There's probably about $30 billion in excess cash that Buffett would invest instantly if he found something good. Given the turmoil lately, I think it's very likely that he's found something or will find something good. If that happens in a big way, the value of Berkshire is going to quickly look a lot better: a few years would likely add another $30 billion (around $20k per share). It's fairly meaningless to try to pick apart Berkshire's value based on a single quarter. These recent quarters have gone very well. The best time to buy Berkshire is when things look bad, like back in early 2000 when the stock was selling for under $50,000 and it was trying to deal with the massive General Re problems. Let me tell you, people were seriously worried, just go back to the Motley Fool message board around that time. Lesson to be learned: good businesses with good management find a way to recover from big problems.
Let's view each Berkshire A share as having two parts: $100,000 for ownership in the businesses and $20,000 cash in the hands of Warren Buffett who is now at the peak of his investment capabilities. For the past 6 months, the company had $3,700 earnings per A share. While that might be a sunny day result, I'd actually be fine with slapping a P/E of 15 onto that, given the set of businesses Buffett has put together (I think earnings will get there on average before too long). That would result in a value of $111,000. The $20,000 in Buffett's hands, I'd say is probably worth around $30,000 given Buffett's skill vs age vs the disadvantage of dealing with tens of billions instead of just millions. So I figure the stock is probably worth around $140K per A share. Not cheap enough for me.
Across America Real Estate (AARD) I wrote, "These people develop retail commercial real estate for stuff like Fedex/Kinkos, gas stations, Starbucks, car washes, Grease Monkey, etc." Q2 results: cash is up about 60% from year end. The amount of real estate held for sale has gone up to 18% of total assets. Half of assets are land held for development. Equity is only 14% of total assets, not all that far from bank levels of leverage and probably nowhere near the stability. Revenues are extremely lumpy, but they seem to be fairly good at losing money. I have no idea what this is worth.
Table Trac (TBTC) This is the very small company doing casino automation. Q2 results: Balance sheet looks ok. Woah, revenues are way up, most of that is this most recent quarter due to an installation in Oklahoma (note that one of my early complaints about the company was that too much revenue was one-time at installation and not recurring). In Q1 they finished up a casino setup in Nicarauga. They earned 7 cents (both quarter and the half). Operating cash flow is negative due to AR. No financing, no investing. 9 casinos are 90% of their revenues.
Perhaps, most significantly, we have been successful with integration and full functionality of our system with the multiple class II vendors in Oklahoma. Accordingly, this achievement has been recognized and has led to additional sales and many requests for new system quotations. In April we closed our second sale in Oklahoma to the Ft. Sill Apaches. We have most recently closed on our largest systems sale to date with the Otoe-Missouria (a two-phase contract), and currently have more quotes under consideration. The Company recently returned from our busiest trade show ever, the OIGA (Oklahoma Indian Gaming Association). On the international front, we contracted on a three-casino development deal in Costa Rica in June, and on July 19th, we signed a Master License Agreement with Thunderbird Resorts, providing exclusivity terms to them in exchange for minimal purchases. They currently have 35 casinos. The company is increasing revenues and earnings, and we anticipate this trend to continue.Hmmm. Let's say they end up with average earnings of 12 cents per share per year. Due to the one-shot nature of the business, we give them a P/E of 9, for a share value of $1.08 (I'm not cheating here, I haven't looked at the stock price yet). The stock price is $2.08. It's gone up quite a bit since I first looked at it in Dec 2005:
At 70 cents on the ask, I just don't think it's a good investment.Yeah. I could be wrong about that.