CAOX - California Orchard Company

[ScottHall]

Great quality FOOD AND FASHION wine land, intercompany loans, lots of cash no debt. CHEAP WINE LAND IRREPLACEABLE ASSETS show Pride of Ownership?

 

see for yourself https://drive.google.com/drive/mobile/folders/1PtmoZQqEDUMQaJ-SH9RfDnoQE8db1qIu?sort=13&direction=a

[Spekulatius]

Pretty cheap stock, IMO. Sort of reminds me off QUCT, which owns a wealth management business, a huge farm in central coastal CA, real estate and a heap of cash. Like watching grass grow, or in the case of CAOX grapes.

[EricSchleien]

Why do you think it's so cheap?

[ScottHall]

http://www.calasfmra.com/trends.php

[Spekulatius]

Why do you think it's so cheap?

 

The dividends yield payed lease payment from an entity with significant net cash tells me already thwt it’s cheap. Vineyards are typically not properties with high cap rates.

[Steven B]

Thanks for the idea Scott! Need to look further; the RE values make it  interesting but it’s not exactly screaming at me. Usually when the land’s value exceeds the market cap it’s screaming but here the business is the land. Appreciate the idea.

 

 

[ScottHall]

CAOX with a major earnings blowout. They renegotiated the Scheid lease too. I wonder how NEXT year will look with tax reform?!  ;D ;D 8) 8)

[Pondside47]

CAOX with a major earnings blowout. They renegotiated the Scheid lease too. I wonder how NEXT year will look with tax reform?!  ;D ;D 8) 8)

 

Could you let us know where to obtain the document you are showing here?

[ScottHall]

CAOX with a major earnings blowout. They renegotiated the Scheid lease too. I wonder how NEXT year will look with tax reform?!  ;D ;D 8) 8)

 

Could you let us know where to obtain the document you are showing here?

 

I excavated it. The company doesn’t file so I had to buy a share to get access. I will post more soon.

[ScottHall]

;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D 8)

 

Hope some of you got in!

[Jurgis]

;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D 8)

 

Hope some of you got in!

 

What ScottHall runup looks like.  8)

[ScottHall]

;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D 8)

 

Hope some of you got in!

 

What ScottHall runup looks like.  8)

 

I think the undervaluation was so extreme here that it is still cheap. These shares are worth thousands in any reasonable buyout or liquidation event and the company is consistently profitable. It is at a little over 11x trailing earnings for vineyard assets that are in quite high demand. Search for articles about central coast vineyard acreage. Harvard loves these assets and is frustrated they can’t buy many portfolios of size. If this company wanted to sell there would be no shortage of bidders.

 

The company took out a small loan to buy more vineyard this past year, so the acreage count is up. The price paid per acre was $43,571.

 

They have 1,823 acres roughly. There are 19,747 shares. The numbers pencil to me.

[goodnight-loving]

Thanks for posting this name.  I'm curious, how did you find it?

[SoonParted]

;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D 8)

 

Hope some of you got in!

 

What ScottHall runup looks like.  8)

 

I think the undervaluation was so extreme here that it is still cheap. These shares are worth thousands in any reasonable buyout or liquidation event and the company is consistently profitable. It is at a little over 11x trailing earnings for vineyard assets that are in quite high demand. Search for articles about central coast vineyard acreage. Harvard loves these assets and is frustrated they can’t buy many portfolios of size. If this company wanted to sell there would be no shortage of bidders.

 

The company took out a small loan to buy more vineyard this past year, so the acreage count is up. The price paid per acre was $43,571.

 

They have 1,823 acres roughly. There are 19,747 shares. The numbers pencil to me.

 

ScottHall, where do you find the 1,823 number in the Annual Report?

[ScottHall]

;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D 8)

 

Hope some of you got in!

 

What ScottHall runup looks like.  8)

 

I think the undervaluation was so extreme here that it is still cheap. These shares are worth thousands in any reasonable buyout or liquidation event and the company is consistently profitable. It is at a little over 11x trailing earnings for vineyard assets that are in quite high demand. Search for articles about central coast vineyard acreage. Harvard loves these assets and is frustrated they can’t buy many portfolios of size. If this company wanted to sell there would be no shortage of bidders.

 

The company took out a small loan to buy more vineyard this past year, so the acreage count is up. The price paid per acre was $43,571.

 

They have 1,823 acres roughly. There are 19,747 shares. The numbers pencil to me.

 

ScottHall, where do you find the 1,823 number in the Annual Report?

 

Oh, it's not listed explicitly. I just added together the acreage the company leases out, the acreage the company operates itself, and the new acreage acquired listed in the "Subsequent Events" note.

 

Excerpts attached so you can check my math.

 

Thanks for posting this name.  I'm curious, how did you find it?

 

One of the Lost Tomes of Value Investing, the Walker's Manual of Unlisted Stocks reference guide. It's not in print anymore and prices have spiked for used copies, but it has some brief details plus financials for OTC/Pink Sheet companies. Many of which otherwise don't file with the SEC.

 

It's great, but the problem is the financials are from the mid-2000s. So how do you get financials? Unless you know someone who has them, generally it involves buying a share or two and then requesting the information as a shareholder. In my experience many companies open up once you establish yourself as a shareholder. Not always - there are some jerk companies out there - but more often than not.

 

As to how I decided on CAOX in particular?

 

My dad was really big into wine and always wanted to be in the business, used to brew his own beer at home and won a blue ribbon for one of his brews at the Intermountain Fair. But he was a wine snob at heart and never reached that dream.

 

So it was sort of sentimental in that regard, the chance to make money on the old man's behalf on some shares of a vineyard. He liked land; "God's not making any more of it!"

 

Beyond the nostalgia trip that drew me to the company, I used Walker's Manual to get a quick overview of the company's land assets and then confirmed myself using the Monterey county government's website. I got a share and sent it in to be held on record, sent a letter to the company, and CAOX sent me the reports for 2016 and 2015.

 

To be honest I could do the math on how much the land was worth but I wanted to see if there had been any developments in 20 years. Debt, asset purchases, that sort of thing. The report confirmed my intuition that this company was sitting on a fortune of real estate. Earnings per share are volatile but the company is consistently profitable.

 

I have bought more shares since the first on a couple of occasions, and now it is now a decent sized position by my standards. I think these vineyards are trophy assets and they're for sale at a pretty high cap rate.

 

And by the way, there is a lot of demand for these sorts of properties. Take a look at this article, and especially the Hancock deal. $44 million for two Monterey vineyards totalling 1,582 acres. $27.8k per acre... Hancock has made some good money on that investment based on current market prices.

 

http://www.farmlandinvestorcenter.com/?p=722&option=com_wordpress&Itemid=171

 

CAOX owns, best I can tell, about 1,823 acres. The market cap is 19,747 shares x $1,375 per share = $27,152,125.

 

Or $14.9k per acre, at today's prices.

 

Vineyard prices have gone up since then, too. Check the California Ag Trends book I linked in my second post on this topic.

 

The one thing I will say is that I wish the company was spending its money on share buybacks at today's prices rather than buying new acreage. Why pay $43k in the private market when you can buy in your own shares at $14.9k?

[ScottHall]

https://medium.com/@ScottMoneyHall/the-curious-case-of-the-california-orchard-company-d29936b83983

[goodnight-loving]

Solid find.  What do you know about the other owners or management who are allowing it to be undervalued? 

[Spekulatius]

https://medium.com/@ScottMoneyHall/the-curious-case-of-the-california-orchard-company-d29936b83983

 

Awesome work digging into this and succeeding. I am not an OTC expert, but ai know that some guard their financials well. I still have one share of VULC ( had an order in for a hundred but somehow ended up with one share LOL) to remind me how management can stonewall. I have never seen any financials of VULC and have no idea what thr hell they are doing. My one share is up 3.5x from when I bought it.

[EricSchleien]

Why do you believe some of these companies take such extreme effort to guard their financials?

[Spekulatius]

Why do you believe some of these companies take such extreme effort to guard their financials?

 

I am guessing that these business were never meant to be public, shares were closely held and the shareholders/owners knew each other and a lot of them were involved in the business.

 

Then shares leaked to outsiders due due to sales from estates or from folks who didn’t care about the business. The insider owners don’t like it, but there is nothing they they can do about it -or is there? They can hide the financial, so outsiders are in the dark and maybe insiders can acquire shares cheaply, or at least run the company like they want to without others interfering.

 

^ The above is just a guess. I don’t know and each situation is different.

[Grafter]

Nice investigative work, and the bump up in the past few weeks is pretty impressive.

[benhacker]

scott, thanks for sharing.

 

the 2016 AR seems to show rent (base + participating) about half of what you note in your blog (closer to $1k / acre / year than the 2k +)... am I reading something wrong?  Just noting the page 2 summary.  Did you add up the total + underlying numbers or am I missing something super obvious (probably)?

 

thanks,

[ScottHall]

scott, thanks for sharing.

 

the 2016 AR seems to show rent (base + participating) about half of what you note in your blog (closer to $1k / acre / year than the 2k +)... am I reading something wrong?  Just noting the page 2 summary.  Did you add up the total + underlying numbers or am I missing something super obvious (probably)?

 

thanks,

 

Hi Ben,

 

Oh, no; you are correct about the 2016 annual. Some parts of the blog reference the 2017 annual which I recently got. Big increases in rent at the vineyards year-to-year and are the primary source for the big jump in EPS from 2016 to 2017.

 

They renegotiated the Scheid lease and and now it has a higher base rent, and participating rent went up for each vineyard. Scheid base rent went from $400 per acre to $1,233 per acre.

 

One vineyard - Arroyo I - had its total rent go up about 4.4x year-to-year. From $517 per acre to $2,279. Arroyo II did 2.42X and Scheid did 1.8x.

 

The operated vineyards did pretty well, too. $1.2 million of operating profits in 2017.

 

Solid find.  What do you know about the other owners or management who are allowing it to be undervalued?

 

All of these families seem like kind of a big deal in Ventura. There are newspaper articles about all of them.

 

The Teagues founded CAOX with the Hobson and Lagomarsino families. All of these families still have representation on the CAOX board, with Alex Teague as CEO and Richard Lagomarsino as VP.

 

The sort of weird thing is that they had already created a land company, Salinas Land Company, and it had (at the time) 9,000 acres. CAOX was apparently sort of carved out of that, buying 1,900 acres from Salinas Land Company according to this newspaper article from 1920. Apparently they brought in some new partners for the CAOX founding.

 

https://cdnc.ucr.edu/cgi-bin/cdnc?a=d&d=PRP19200807.2.8

https://www.andnowuknow.com/behind-greens/salinas-land-company-and-california-orchard-company-celebrating-100-years/jordan-okumura/55305

 

There's a decent bit online about the Teague family. Check out these articles from the '90s. The fact that a Teague and Lagomarsino held a Congressional seat down in Ventura in succession, for decades... Well, that speaks for itself to me.

 

http://articles.latimes.com/1990-05-19/local/me-325_1_santa-paula

 

http://articles.latimes.com/1998/nov/29/local/me-48806

 

https://www.pacbiztimes.com/2014/09/19/dubroff-teague-chose-family-over-politics-and-ventura-county-prospered/

 

The Teagues are involved with Limoneira, another famous land company here in California. Alex Teague, who is a board member and the president of CAOX is also the COO of Limoneira. He owns 1.2% of Limoneira stock.  And you can read the history of Alan Teague on the LA Times article.

 

http://limoneira.com/team/alex-teague/

https://www.sec.gov/Archives/edgar/data/1342423/000117494718000233/c484715_def14a.htm

 

Then there are the Smith-Hobsons. According to this history page from the city of Ojai, California, the city hall is literally the old family home.

 

http://ojaicity.org/city-hall-history/

 

They have their own property business, Smith-Hobson LLC.  They have a collection of very nice looking properties and if you check their website, they claim Salinas Land Company as one of them. But they have a self-storage business and a couple of ranches as well.

 

http://www.smithhobson.com/

 

My general view of this situation is that  these families seem to be members of the Ventura County old boy's club. Every family involved seems to have multiple successful businesses, some of them have been major local political figures. To me the California Orchard Company is but one piece of their keiretsu.

 

Nice investigative work, and the bump up in the past few weeks is pretty impressive.

 

Thank you! :)

 

https://medium.com/@ScottMoneyHall/the-curious-case-of-the-california-orchard-company-d29936b83983

 

Awesome work digging into this and succeeding. I am not an OTC expert, but ai know that some guard their financials well. I still have one share of VULC ( had an order in for a hundred but somehow ended up with one share LOL) to remind me how management can stonewall. I have never seen any financials of VULC and have no idea what thr hell they are doing. My one share is up 3.5x from when I bought it.

 

Thank you Spekulatius! Yeah, some companies are way worse than CAOX. After I established myself as a shareholder of record they were pretty easy to deal with. Congrats on the share of VULC! :)

 

Why do you believe some of these companies take such extreme effort to guard their financials?

 

I am guessing that these business were never meant to be public, shares were closely held and the shareholders/owners knew each other and a lot of them were involved in the business.

 

Then shares leaked to outsiders due due to sales from estates or from folks who didn’t care about the business. The insider owners don’t like it, but there is nothing they they can do about it -or is there? They can hide the financial, so outsiders are in the dark and maybe insiders can acquire shares cheaply, or at least run the company like they want to without others interfering.

 

^ The above is just a guess. I don’t know and each situation is different.

 

This is my understanding too. Someone at CAOX told me that some shares got out that "weren't supposed to," and that's how the public stock market listing happened. I've heard that a lot.

 

Of course, the company had bought back some stock (not a ton) at, in hindsight, very low prices. Six of one, a half dozen of the other?

[benhacker]

Scott, many thanks.  Sending you a DM...

[Hielko]

This is my understanding too. Someone at CAOX told me that some shares got out that "weren't supposed to," and that's how the public stock market listing happened. I've heard that a lot.

It's semantics, but what CAOX has is not a public stock market listing. The company isn't public, and it isn't listed. It's a private company that has shares that can be traded on the pink sheets.