Wednesday, March 31, 2010

Hidden Land Values

ML Macadamia Orchards (NNUT) grows and farms macadamia nuts in Hawaii. Like most producers of commodity products, its revenues are subject to wild price swings as droughts, infestations and other natural occurrences can play havoc with nut yields around the world. ML, however, has stabilized its business to some extent by contracting fixed prices at which it sells its products (to a subsidiary of Herchey's, HSY).

But what makes this company an interesting value play is not its farming operations, but the land on which these operations are conducted. The company has over 2200 acres of land in Hawaii that may be worth substantially more than the company's market value. A reader notes that nearby land, used for the same purpose, is selling for almost $20,000/acre. Applying that valuation to ML's land gives it a value of over $40 million. Meanwhile, the stock trades for just $18 million.

But wait! Before jumping on this opportunity, shareholders would be wise to consider whether that land value will ever be realized. In recent years, the company has been an acquirer of land, as it has grown its agricultural footprint. Furthermore, if the earnings off the land are not high (and they haven't been over the last few years), then perhaps the land is not worth as much as the above seller is asking. Unless the land can be used more efficiently, or future earnings for some reason are higher than past earnings, why should the land be worth so much?

Furthermore, two shareholders own almost half of this company, and their intentions are not clear. Unless one or both of these owners are interested in taking actions that would act as a catalyst, shareholder value might not be realized - even if the land is worth a lot right now - in this company for a long, long time.

Disclosure: None

1 comment:

Hester said...

Hi Saj,

Have been reading your blog today (came over from Seeking Alpha). I find it interesting, we have a very similiar style and invest in similiar stocks. Nice article on NNUT, cool to see our discussion lead to an article. If you ever want to talk stocks or share "tips" (although I don't like that word), just let me know.

Have a nice day,