PDER - Pardee Resources

[sarganaga]

Over the past several weeks I've built a 6% position in Pardee Resources. As others in this thread have pointed out, the timberland is probably worth at least the total market cap of the company ($136 million appraisal for part of the timberland in 2014).

The optionality offered by the royality interests in their oil and gas properties is enhanced by the recent increases in the underlying commodities.

One of the main knocks on the company was the excessive expenses considering their mostly passive management of their properties. This has been partially addressed by the restructuring which is supposed to save $1.4 million per year. It still seems like a lot, but ..

Their investment in table grapes seemed a bit out of left field, especially at the cost of around $40,000 per acre. Surprisingly, table grapes in California's central valley have a gross yield of $9600 per acre, compared to wine grapes at $3700 and raisins at $1500 per acre in the same area. Much of the cost of productive table grape acreage is in the infrasructure, trellises, etc.  Reference (http://www.jainsusa.com/grape-and-raisin) These returns were surprising to me and make the purchases make more sense.

Coal is what it is. Some value, who knows how much,  should be realized from this segment.

The solar projects generate decent returns, especially if there is opportunity to utilize the tax credits.

 

Overall, these are some pretty sharp guys who seem to want to make money for their shareholders as well as themselves. This will be a long term holding for me, so hopefully they can continue making productive investments.

 

 

[mikek]

Anyone have the latest Quarterly report or AGM notes?

 

Thanks for your time

[sarganaga]

I've sent them proof of ownership and a request to be added to their shareholder report mailing list. I will try to post when I receive anything new. Post #102 in this thread has an attachment of Q4 2015 report which is the most recent I've seen.

[60North Investments]

Latest earnings report, from August, Q2 2016.

2016_2nd_QuarterReport.pdf

[sarganaga]

Thanks for posting the report.

[writser]

If you e-mail Pardee a copy of your brokerage statement they will send you the quarterlies automatically.

[TwoCitiesCapital]

Anyone care to speculate why they haven't decided to tender for more shares? The latest timber acquisition they did was in late 2015 for ~$1,125/acre for timber.

 

By repurchasing their own shares at $200 (a 15% premium to current price), it's equivalent to increasing ownership in timber acreage for $892/acre while getting an increased interest in oil, gas, coal, grapes, and solar on top of that.

 

Just seems odd that they'd do land acquisitions at $1,125 and not repurchase their shares which appears to be the better deal. Maybe they feel they were burned in the last tender at $260?

 

I'm just really excited to own this company and this name and want to buy more every time I look at it, but trying to figure out why the "experts" aren't buying.

[Tim Eriksen]

For most of the past ten years the stock was attractive not in relation to book value, but in terms of earnings and cash flow.  Earnings are in the toilet.  They don't cover the dividend.  Earnings were $25 per share in 2013, $20 per share in 2014, $14 per share in 2015, and are looking at $5 per share for 2016.  In 2012 pretax earnings were $24 million.  2016 they are looking at $5 million.  For me it was never so much about timber value per share and how timber grows tax deferred at 3% a year, it was all about cash flow of coal, oil/gas, and timber.  The stock is at $175 per share.  I wouldn't be a buyer at anywhere near these prices until I see higher coal, and oil/gas prices.  Maybe they are not repurchasing because they see the stock as overpriced at the moment. 

 

What it has going for it is the past track record of management, otherwise it would be selling near $100 and investors would expect a dividend cut. 

[TwoCitiesCapital]

For most of the past ten years the stock was attractive not in relation to book value, but in terms of earnings and cash flow.  Earnings are in the toilet.  They don't cover the dividend.  Earnings were $25 per share in 2013, $20 per share in 2014, $14 per share in 2015, and are looking at $5 per share for 2016.  In 2012 pretax earnings were $24 million.  2016 they are looking at $5 million.  For me it was never so much about timber value per share and how timber grows tax deferred at 3% a year, it was all about cash flow of coal, oil/gas, and timber.  The stock is at $175 per share.  I wouldn't be a buyer at anywhere near these prices until I see higher coal, and oil/gas prices.  Maybe they are not repurchasing because they see the stock as overpriced at the moment. 

 

What it has going for it is the past track record of management, otherwise it would be selling near $100 and investors would expect a dividend cut.

 

I mean, that makes sense to a certain extent - but if they're buyers of timber at $1,100/acre or could buy there own stock and get equivalent timer at $890/acre plus get a bunch of other stuff, I don't understand why they wouldn't be doing that.

 

They obviously thought the timber was a good investment in 10/2015 - they could make a similar investment at a far more advantageous price with share repurchases is all I was saying.

 

I get that earnings are in the dumps right now and will remain that way as long as commodities are - but as long as they're deploying capital in timber purchases, it seems the shares are the better buy. 

 

 

[wachtwoord]

This is a top-3 position for me (bought at ~$154) and I believe it's undervalued at the current price. I consider it a temporary situation that they are not making more money of their land because of the glut in commodities. I think this is an extremely well-run company and a prime example of a company to own if the stock markets closed for ten years tomorrow.

[sarganaga]

This is a top-3 position for me (bought at ~$154) and I believe it's undervalued at the current price. I consider it a temporary situation that they are not making more money of their land because of the glut in commodities. I think this is an extremely well-run company and a prime example of a company to own if the stock markets closed for ten years tomorrow.

 

This is a large position for me (about 7%) and  I too think it's undervalued at these prices. The fact that they have pretty strong EBITA ($4.59 per share for Q3 and $13.38 for the first 9 months of the year) during a time of  commodity carnage shows well for them. Prices have been improving for their specific commodities recently. They have virtually no debt. And the trees do continue to grow.

[oddballstocks]

I've continued to add as well.  I went to their annual meeting last year and what struck me was the management team's flexibility.  They have a basket of assets and they're out hunting for the best return.  The alternative energy stuff is a tax credit land grab.  But they said once the credit's are done they're out.  Likewise they looked at their land and determined what could be turned into housing developments and have started to move on it.

 

We aren't in gas boom territory anymore, but anecdotally activity still seems strong.  I'm basing this off of what I see living in the middle of the "Saudi Arabia of shale" as PDER's gas guy told me.  A few years ago remote highways were packed with water and drill trucks.  I'd say volume is down 50%, but still very elevated compared to the past.  I know some wildcat guys here and they're still struggling to find deals on land.  Prices haven't cratered.  I keep my eye on rural land as well and everything is still inflated by gas, even though drilling activity is down.

 

The company's earnings are changing as they've exhausted their coal.  Right now this isn't attractive on an earnings basis, but the assets are still valuable.  The assets coupled with a flexible management team that's proven themselves in the past is enough optionality for me.

 

For anyone interested Pardee's land is extremely accessible and in a beautiful part of West Virginia.  We drive through it once or twice a year when we head south.  The majority of the forested land on Route 19 between Beckley and I-79 is Pardee land.  It's worth a visit if you're ever in the area.

[Tim Eriksen]

For most of the past ten years the stock was attractive not in relation to book value, but in terms of earnings and cash flow.  Earnings are in the toilet.  They don't cover the dividend.  Earnings were $25 per share in 2013, $20 per share in 2014, $14 per share in 2015, and are looking at $5 per share for 2016.  In 2012 pretax earnings were $24 million.  2016 they are looking at $5 million.  For me it was never so much about timber value per share and how timber grows tax deferred at 3% a year, it was all about cash flow of coal, oil/gas, and timber.  The stock is at $175 per share.  I wouldn't be a buyer at anywhere near these prices until I see higher coal, and oil/gas prices.  Maybe they are not repurchasing because they see the stock as overpriced at the moment. 

 

What it has going for it is the past track record of management, otherwise it would be selling near $100 and investors would expect a dividend cut.

 

I mean, that makes sense to a certain extent - but if they're buyers of timber at $1,100/acre or could buy there own stock and get equivalent timer at $890/acre plus get a bunch of other stuff, I don't understand why they wouldn't be doing that.

 

They obviously thought the timber was a good investment in 10/2015 - they could make a similar investment at a far more advantageous price with share repurchases is all I was saying.

 

I get that earnings are in the dumps right now and will remain that way as long as commodities are - but as long as they're deploying capital in timber purchases, it seems the shares are the better buy.

 

They made two purchases in late 2015.  One in West Virginia $1100/acre including underlying minerals, and the other in Virginia (softwood plantation) $1700/acre. 

I am not a timber expert.  I assume the reason is the nature of what they own versus what they purchased.  They own primarily hardwood and in Virginia bought pulpwood.  My limited understanding is hardwood is a very long term asset with minimal cutting each year (less than growth) while pulpwood is a short term asset with substantial cutting in just a few years, then replanting or selling the land.  So while they may be paying more on a per acre basis, the pulpwood is more attractive on a cash flow basis.

 

As for the West Virginia purchase it was probably due to the value of the underlying minerals was better on a per acre basis than Pardee's existing lands.  Their track record on acquisitions is very impressive.  I don't question them much in that regard.   

 

[TwoCitiesCapital]

Anyone know the details of the annual meeting? I e-mailed shareholder services like two weeks ago, but received no response.

[oddballstocks]

Regarding share repurchases.  This has occurred to me over the past few months.

 

I don't think Pardee repurchases shares on the open market, in their materials they talk about how illiquid and thin the share market is.  Instead my guess is they repurchase shares from individuals who contact them to sell their position back.

 

Within that view it isn't a buy x vs buy shares, it's buy x vs has anyone called us with shares to sell?

 

Regarding the meeting, it should be in early May in Philly at the Pyramid Club.  It's a few blocks from the train station and very easy to get to.  If you can take the train to avoid the usurious parking fees for downtown Philly.

[TwoCitiesCapital]

Regarding share repurchases.  This has occurred to me over the past few months.

 

I don't think Pardee repurchases shares on the open market, in their materials they talk about how illiquid and thin the share market is.  Instead my guess is they repurchase shares from individuals who contact them to sell their position back.

 

Within that view it isn't a buy x vs buy shares, it's buy x vs has anyone called us with shares to sell?

 

Regarding the meeting, it should be in early May in Philly at the Pyramid Club.  It's a few blocks from the train station and very easy to get to.  If you can take the train to avoid the usurious parking fees for downtown Philly.

 

Thanks for the info on the shareholder meeting. Philly is only 2 hours from here so I figured I should attend if I'm looking to make this a serious position.

 

As for the repurchases, I was thinking more along the lines of a tender offer at a premium like they have done previously. I imagine they'd have received plenty of interest if offering $200 when it was trading at $160. Overall, I'm not angry at them. Just trying to understand the capital allocation decisions when the stock seems incredibly cheap just relative to timber holdings and ignoring everything else.

[oddballstocks]

Regarding share repurchases.  This has occurred to me over the past few months.

 

I don't think Pardee repurchases shares on the open market, in their materials they talk about how illiquid and thin the share market is.  Instead my guess is they repurchase shares from individuals who contact them to sell their position back.

 

Within that view it isn't a buy x vs buy shares, it's buy x vs has anyone called us with shares to sell?

 

Regarding the meeting, it should be in early May in Philly at the Pyramid Club.  It's a few blocks from the train station and very easy to get to.  If you can take the train to avoid the usurious parking fees for downtown Philly.

 

Thanks for the info on the shareholder meeting. Philly is only 2 hours from here so I figured I should attend if I'm looking to make this a serious position.

 

As for the repurchases, I was thinking more along the lines of a tender offer at a premium like they have done previously. I imagine they'd have received plenty of interest if offering $200 when it was trading at $160. Overall, I'm not angry at them. Just trying to understand the capital allocation decisions when the stock seems incredibly cheap just relative to timber holdings and ignoring everything else.

 

I'd encourage you to go.  I came away with a very different impression of the company after attending a shareholder meeting.  Before I went I had this impression of resource guys who really didn't understand finance or financials.  They were just buying and selling coal, timber, gas etc.

 

That isn't the case at all.  Management is very sophisticated, they explained their process in detail on how they view deals and what they need to invest.  I came away with the impression that this is basically a resource hedge fund.  They own the assets, but outside of some land in WV that has a familial attachment the rest is all in play.  They have done some very savvy deals, especially in the solar space.  They partnered up with a company to build solar facilities.  PDER was providing financing but received tax credits back immediately.  I don't remember the IRR they mentioned, but it was significant.  They found a slight hole in the system and exploited it.

 

They also showed an interesting map at the meeting.  It was a layer map of timber/coal/gas.  They said they look to buy timber that has multiple other assets available.  There was a significant overlap between their timber holdings gas holdings and coal holdings.

 

If you're only two hours away from Philly it's probably also worth a drive down into WV and VA to take a look at their land.  If you take I-79 S and exit on Route 19 their land starts around Summersville.  It extends from there well past Beckley and into Virginia.

[TwoCitiesCapital]

Regarding share repurchases.  This has occurred to me over the past few months.

 

I don't think Pardee repurchases shares on the open market, in their materials they talk about how illiquid and thin the share market is.  Instead my guess is they repurchase shares from individuals who contact them to sell their position back.

 

Within that view it isn't a buy x vs buy shares, it's buy x vs has anyone called us with shares to sell?

 

Regarding the meeting, it should be in early May in Philly at the Pyramid Club.  It's a few blocks from the train station and very easy to get to.  If you can take the train to avoid the usurious parking fees for downtown Philly.

 

Thanks for the info on the shareholder meeting. Philly is only 2 hours from here so I figured I should attend if I'm looking to make this a serious position.

 

As for the repurchases, I was thinking more along the lines of a tender offer at a premium like they have done previously. I imagine they'd have received plenty of interest if offering $200 when it was trading at $160. Overall, I'm not angry at them. Just trying to understand the capital allocation decisions when the stock seems incredibly cheap just relative to timber holdings and ignoring everything else.

 

I'd encourage you to go.  I came away with a very different impression of the company after attending a shareholder meeting.  Before I went I had this impression of resource guys who really didn't understand finance or financials.  They were just buying and selling coal, timber, gas etc.

 

That isn't the case at all.  Management is very sophisticated, they explained their process in detail on how they view deals and what they need to invest.  I came away with the impression that this is basically a resource hedge fund.  They own the assets, but outside of some land in WV that has a familial attachment the rest is all in play.  They have done some very savvy deals, especially in the solar space.  They partnered up with a company to build solar facilities.  PDER was providing financing but received tax credits back immediately.  I don't remember the IRR they mentioned, but it was significant.  They found a slight hole in the system and exploited it.

 

They also showed an interesting map at the meeting.  It was a layer map of timber/coal/gas.  They said they look to buy timber that has multiple other assets available.  There was a significant overlap between their timber holdings gas holdings and coal holdings.

 

If you're only two hours away from Philly it's probably also worth a drive down into WV and VA to take a look at their land.  If you take I-79 S and exit on Route 19 their land starts around Summersville.  It extends from there well past Beckley and into Virginia.

 

Just looked into this to see if I could drive through after the meeting, but didn't realize that the area involved appears to be 6-7 hours from Philly. Might be better to wait until I eventually visit Pittsburgh to view in person. Are you going to be at the meeting this year?

 

 

[oddballstocks]

Regarding share repurchases.  This has occurred to me over the past few months.

 

I don't think Pardee repurchases shares on the open market, in their materials they talk about how illiquid and thin the share market is.  Instead my guess is they repurchase shares from individuals who contact them to sell their position back.

 

Within that view it isn't a buy x vs buy shares, it's buy x vs has anyone called us with shares to sell?

 

Regarding the meeting, it should be in early May in Philly at the Pyramid Club.  It's a few blocks from the train station and very easy to get to.  If you can take the train to avoid the usurious parking fees for downtown Philly.

 

Thanks for the info on the shareholder meeting. Philly is only 2 hours from here so I figured I should attend if I'm looking to make this a serious position.

 

As for the repurchases, I was thinking more along the lines of a tender offer at a premium like they have done previously. I imagine they'd have received plenty of interest if offering $200 when it was trading at $160. Overall, I'm not angry at them. Just trying to understand the capital allocation decisions when the stock seems incredibly cheap just relative to timber holdings and ignoring everything else.

 

I'd encourage you to go.  I came away with a very different impression of the company after attending a shareholder meeting.  Before I went I had this impression of resource guys who really didn't understand finance or financials.  They were just buying and selling coal, timber, gas etc.

 

That isn't the case at all.  Management is very sophisticated, they explained their process in detail on how they view deals and what they need to invest.  I came away with the impression that this is basically a resource hedge fund.  They own the assets, but outside of some land in WV that has a familial attachment the rest is all in play.  They have done some very savvy deals, especially in the solar space.  They partnered up with a company to build solar facilities.  PDER was providing financing but received tax credits back immediately.  I don't remember the IRR they mentioned, but it was significant.  They found a slight hole in the system and exploited it.

 

They also showed an interesting map at the meeting.  It was a layer map of timber/coal/gas.  They said they look to buy timber that has multiple other assets available.  There was a significant overlap between their timber holdings gas holdings and coal holdings.

 

If you're only two hours away from Philly it's probably also worth a drive down into WV and VA to take a look at their land.  If you take I-79 S and exit on Route 19 their land starts around Summersville.  It extends from there well past Beckley and into Virginia.

 

Just looked into this to see if I could drive through after the meeting, but didn't realize that the area involved appears to be 6-7 hours from Philly. Might be better to wait until I eventually visit Pittsburgh to view in person. Are you going to be at the meeting this year?

 

If you're in Pittsburgh let me know, I'd be up for getting a beer and talking stocks.

 

No meeting this year.  Travel is pretty much limited to vacations with the fam at this point.  Next year might be better when more of my kids are in school all day.

[sarganaga]

Pardee Resources (PDER) released 2nd Q 2017 earnings, 2.36 vs .65, and EBITDA 6.26 vs 3.64. Paid off $8.9 million bank line of credit completely.

[_JJ_]

Have Q3 earnings been released already? I asked the company to put me on the shareholder mailing list but I'm not sure if they have done so...

[frommi]

Have Q3 earnings been released already? I asked the company to put me on the shareholder mailing list but I'm not sure if they have done so...

 

Yes. EPS 3.65 for the quarter, looks like you are not on the list. Just mail them again.

[Foreign Tuffett]

Can anyone post the most recent annual report, as well as the most recent quarterly report? I don't own any shares, and so don't have access to the financials.

[Tim Eriksen]

I can't find my Q3 report for some reason.  Here is the annual.

 

If you want prior years PM me.  I have back to 2002.

Pardee_Resources_2016_AR.pdf

[Foreign Tuffett]

I can't find my Q3 report for some reason.  Here is the annual.

 

If you want prior years PM me.  I have back to 2002.

 

Thanks Tim.

 

Some "devil's advocate" type questions for anyone who cares to chime in:

 

1) To what extent is this really a play on met coal prices? Even in 2016, a horrid year for coal, their coal segment was their single largest source of revenue with met coal royalties, in turn, comprising 76% of total coal segment revenue. They are probably doing well this year since met coal prices have been strong.

 

2) I know there's been lots of discussion about the value of their timberland holdings. Doesn't the market value companies based on the NPVs of their future cash flows though? Timberlands generally generate anemic cash flows and, as Pardee probably isn't going to sell off big chunks of land anytime soon (right?), the timber lands should be valued based on their likely cash flows and not their hypothetical sale prices. Am I thinking about this right?

 

3) As others have pointed out, their G&A costs are quite high. Surely this is, at least in part, a result of them operating in a number of different segments spread all over the country. I wonder if they would be better off focusing on their core Central Appalachia businesses and  rightsizing their G&A accordingly?

 

4) Has their been any shale gas E&P activity on their vast land holdings? In the 2016 annual report they mention coalbed methane wells, but my understanding is that coalbed methane isn't very cost competitive when compared to shale gas.