PDER - Pardee Resources

[Hielko]

Looking at the AR wouldn't help a lot because it wouldn't provide enough detail to learn what kind of costs are exactly attributed to each segment and what costs are attributed to general corporate overhead. But whatever the exact details: you always have costs that are required to run the business that are part of general corporate overhead. How much is really required and how much are unnecessary costs is of course a tough question to answer.

[JAllen]

Why not use an income approach?  Think the ~14% yield will go away now that they have moved away from coal some with the major gas purchase last year?

 

 

The timber is worth $150.  The appraisal didn't include all of it.  There's phantom income there too.

 

 

What about their Marcellus acreage that could be developed once the pipelines are complete in WV?  The Marcellus underlies substantially all of WV.

 

 

I think an income approach is better because they're not liquidating.

 

 

Coal is still 30% of U.S. energy consumption too.  If you mark their coal at zero, like it seemed someone above did, I just don't think that's an accurate way to value this company.

 

 

Now what I don't like: the stock grant that occurred this year that wiped out much of the buyback early last year.  Will the CEO really leave a fourth generation company because he doesn't get a bunch of options?  Mgmt. and BoD have a conflict: the longer the stock price stays lower the more options they collect.  I care less about the G&A and more about the share count.

[bizaro86]

I don't think subtracting corporate G&A from the valuation is the right approach. The assets that Pardee owns aren't passive cash flowing machines that don't need any human management/oversight. Since every buyer of these assets would have overhead the cost of it would for a large part already be reflected in asset prices. Only when Pardee would lack economies of scale or if overhead is too high for another reason it would warrant to trade at a discount.

 

I think their $7MM of overhead is pretty high for a company of this size, especially considering it doesn't really have operations, it just collects royalties. The SA article linked above says they have something like 15 vice presidents/presidents, which seems like more than they need to me.

 

Plus, I think the assets they own are just about as close to passive cash flow machines as you can get. They own mineral rights that other people mine/drill, and timberland that other people harvest. Overhead should be low, imo, and its not. If it was this would probably be my largest position.

[Tim Eriksen]

 

Now what I don't like: the stock grant that occurred this year that wiped out much of the buyback early last year.  Will the CEO really leave a fourth generation company because he doesn't get a bunch of options?  Mgmt. and BoD have a conflict: the longer the stock price stays lower the more options they collect.  I care less about the G&A and more about the share count.

 

What stock grant are you referring to?  There was some stock issuance but it was much smaller than the buyback. I agree that overhead is growing too fast.  Directors are way overpaid in the sense that the business is simple and there is little work for the 50 to 60k per year they get. 

[bizaro86]

JAllen, I thought the same about the grants wiping out the buyback, until I realized the stock counts in consolidated statements of operations are weighted average shares outstanding for the entire year. The new Q1 report has share counts in it that show the effects of the buyback more clearly. (685k weighted average Q1 15 vs 727k weighted average Q1 14).

 

I certainly agree that options and directors stock aren't good use of the company's resources. I also don't like that the stock in lieu of director's fees was priced at $220.50 per share in 2014, which seems pretty low for how the company traded. (Note 7 in the AR, 2183 shares in lie of $481,361 in fees) Since I already feel the fees are too high, this compounds the issue. I'm assuming that the director's comp isn't all paid in January, which seems likely.

[JAllen]

Ok, I was thinking that because the tender offer was closer to the beginning of the year that the wtd average calculation would have taken care of that because it was a quarterly calculation but I suppose it is a beginning and end calculation.

 

 

I wish they would buy back more stock consistently.  They are a mature company with excess cash flow.  And overhead could be lower, agreed.

 

 

One thing people could do is write about PDER more causing more people to buy the stock which would cause the company to repurchase more shares to stay unregistered.

[writser]

The chairman:

 

Finally, our diversity of assets continues to be dominated by the value of our timber. According to our most recent appraisal, done in 2013, our hardwood timber assets represent 78% of the Company’s current market capitalization. Personally, I think this is out of whack, but we can’t fight the market. What we can do is make good investments with good returns, which is what we are trying to do.

 

Hinting at another tender offer? Probably I'm reading too much into this. At least the undervaluation seems to be on his mind.

[pocoapoco]

A lot has been made of their timber assets and their assessed value.  Do we know why they did an assessment on these assets?  Was it in order to sell them?

If not, then why do the assessment?  If it is promotional in some way (in order to convince the market of the company's value) then spending money on that would be a red flag.

[oddballstocks]

They discussed buybacks at the annual meeting.  They said they keep them in mind but in this environment can get much better returns by buying distressed coal/gas assets.  I'm guessing we see an announcement about more purchases at some point soon.

 

Most timber companies have their assets assessed every few years.  This might be the first one Pardee has made public.

[Tim Eriksen]

A lot has been made of their timber assets and their assessed value.  Do we know why they did an assessment on these assets?  Was it in order to sell them?

If not, then why do the assessment?  If it is promotional in some way (in order to convince the market of the company's value) then spending money on that would be a red flag.

 

Having been a shareholder for over 10 years, I can attest Pardee is is not promotional.  Based on reported earnings or cash flow, it makes sense to sell the timber, but the real question is does it make economic sense?  Only harvested production is captured under GAAP, not the yearly growth.  Each year the tree grows and it is tax deferred growth.

 

I still lean toward preferring a sale using a 1031 exchange and buying something with higher near term cash flows.       

[NeverLoseMoney]

Pardee has made a small ($1.6 million) agricultural property investment: http://www.prnewswire.com/news-releases/pardee-resources-company-agricultural-property-investment-300092856.html

 

PHILADELPHIA, June 2, 2015 /PRNewswire/ -- Pardee Resources Company (OTC: PDER) (the "Company") reports that its subsidiary, Pardee Agricultural Properties LLC, recently closed on the purchase of a 40-acre farmland tract located in Kern County, at the southern end of California's Central Valley.  The tract will be developed and managed for specialty table grapes by a local, multi-generational agricultural operating company.  The Company has committed $1.6 million for the acquisition and the development of this property.  "We are excited to close on our first agricultural property investment and look forward to growing this platform to further diversify our land business," said Carleton P. Erdman, President and Chief Executive Officer.

[Hielko]

No idea if it's a good use of cash, but sounds reasonable.

[indirect]

40K per acre of grapes is peak price. May work out but no margin of safety. This is not Napa county, mostly table grapes.

[abitofvalue]

The $1.6m  seems to be acquisition cost plus development cost so it’s not really clear what they paid.  That said, $40k/ac for table grapes is high, especially with only 40 acres, which isn’t a very efficient size.

 

Maybe the development costs are value additive beyond just land improvements?

[bizaro86]

Any chance there's some sort of water rights angle here? Their business plan seems to be getting more than one type of value out of land (coal + timber) or (timber + residential development) or whatever.

[oddballstocks]

I'm sure there are water rights, but in WV, KY, Va water isn't really an issue. There is a LOT of it.

 

The CFO said much of their timber is also coal and gas. They try to 'stack' as much as possible. I'm not sure you could just sell the timber without the coal or gas going away.

[writser]

It's a very small transaction. I don't think we should try to infer too much from that press release only.

[bizaro86]

I'm sure there are water rights, but in WV, KY, Va water isn't really an issue. There is a LOT of it.

 

The CFO said much of their timber is also coal and gas. They try to 'stack' as much as possible. I'm not sure you could just sell the timber without the coal or gas going away.

 

Sorry, I meant water rights on their new 40 acres of grape land in California. It seems to me if the land is currently/potentially usable for agriculture, maybe it has senior water rights that have potential future value in excess of their agricultural value or something. I was just responding to those saying it seems like a high price for arable land. (Which it does to me, agricultural land where I live goes for about 5-10% of that price per acre, but of course only usable for wheat/canola, not grapes). They seem to make smart acquisitions, so I'm willing to trust them on this. I'd actually be more concerned if it was wine grapes, to be honest, as it could be someones life long dream to own a winery, but I doubt that's the case for table grapes.

[TwoCitiesCapital]

Einhorn interested in coal assets too

 

http://www.bizjournals.com/pittsburgh/blog/energy/2015/06/who-wants-to-invest-in-coal-greenlights-einhorn.html

[abitofvalue]

They announced another timber acquisition last week. About 9741 acres for 17M in Virginia.  Stock is about 25% lower than the tender now. Though you could argue the companies commodity end markets have been quite out of favor lately.

[60North Investments]

Q3 was as one might guess, a very difficult quarter. EBIT down 60% YoY, with O&G's EBIT being -$0.3m for the quarter despite an 18% increase in production. G&A flat YoY, for the 9 months it's up from $5.3m to $5.7m.

 

With the current price of $198 you get timber/forest assets that were valued last year at $194/share, plus the two pieces they've bought this year for $34/share. So timber assets have a market value of roughly $228/share. Then there's $13/share of net cash, and the solar, coal, O&G assets that generated $3.5/share EBIT in Q3, and have generated $7.5/share YTD. So what is $10/share in EBIT that has been declining and might decline further, but presumably isn't a good proxy for normalized EBIT, worth of? The market is either saying a) the timber assets aren't worth $230 and/or b) that $10 of EBIT from other assets is going to be significantly lower in the future (and we don't want to assign much of value to it).

 

I would hesitate to guess that this will get more recognition from the market only when O&G gets a turnaround. I at least have a hard time seeing how the market would suddenly start appreciating their timber assets, and coal I guess doesn't seem too likely to get a big turnaround? Probably means more time to buy for your retirement portfolio if you believe these guys can win despite the headwinds.

[ScottHall]

Q3 was as one might guess, a very difficult quarter. EBIT down 60% YoY, with O&G's EBIT being -$0.3m for the quarter despite an 18% increase in production. G&A flat YoY, for the 9 months it's up from $5.3m to $5.7m.

 

With the current price of $198 you get timber/forest assets that were valued last year at $194/share, plus the two pieces they've bought this year for $34/share. So timber assets have a market value of roughly $228/share. Then there's $13/share of net cash, and the solar, coal, O&G assets that generated $3.5/share EBIT in Q3, and have generated $7.5/share YTD. So what is $10/share in EBIT that has been declining and might decline further, but presumably isn't a good proxy for normalized EBIT, worth of? The market is either saying a) the timber assets aren't worth $230 and/or b) that $10 of EBIT from other assets is going to be significantly lower in the future (and we don't want to assign much of value to it).

 

I would hesitate to guess that this will get more recognition from the market only when O&G gets a turnaround. I at least have a hard time seeing how the market would suddenly start appreciating their timber assets, and coal I guess doesn't seem too likely to get a big turnaround? Probably means more time to buy for your retirement portfolio if you believe these guys can win despite the headwinds.

 

All fair points. These guys have historically been pretty good with their deal making, but obviously the O&G acquisition has turned out to be poorly timed so far.

 

I am still holding my shares. It's a mid-sized position for me, has lagged the market by quite a bit. But they are generally pretty shrewd, and their business model insulates them from the worst of the commodity cycle - compare to some of the larger public coal pure plays.

 

I'm very comfortable with the asset base the company has and am happy to continue to hold pretty much indefinitely... over time, they'll probably do pretty well vs. commodities businesses in aggregate and I like having some exposure to hard assets managed by historically good owners.

[Libs]

Stock is being taken out and shot....I'm getting the sense it's going to take a long time for this to turn around as there is little relief in sight for resource stocks. They couldn't be more out of favor.

 

I can see the O & G and coal pessimism, but timber prices don't look that bad:

 

https://ycharts.com/indicators/timber_index_world_bank

 

I'm just going to sit on this for a few years and pretend there is no quote.

 

[dwy000]

I wonder if the question around timber is twofold:  a) is the timberland actually worth the valuation that was done last year;  b) if it is, what is the company doing to realize that value? 

 

I think it's more the latter.  The land is only worth that valuation to Pardee if it's sold.  Sitting on the books it earns a horrible return.  And they haven't shown any indication of wanting to realize the value.  If they actually sold some of that land off at values anywhere near the appraisal they might get more credibility in the stock price.

[ScottHall]

Yeah, they've had a rough go of it lately. The quarterly results have been pretty bad, with low energy prices really taking them down. However, they're still solidly cash flow positive and have a good base of assets.

 

I also intend to hold this one for a long time to come, but I have not been adding recently.