In episode #48 of the Intelligent Investing Podcast, I sat down with Anthony Waldichuk to discuss National Stock Yards Co. (OTCPK:NSYC).
The company is very small — a $12 million market cap. The main operating business is a stockyard business in Oklahoma City. The company conducts daily cattle auctions and is a pretty boring business.
However, what's interesting is its non-existent side business. The company owned the Armour meat packing plant. But that business shut down, and is now a large plot of land totaling just under 200 acres.
National Stock Yards still has 191 acres of this land after selling 11 acres for $890,000 two years ago. It appears this land is undervalued on the books, as the company has this real estate on the balance sheet for $3 million.
With a $12 million market cap, it's likely the real estate is worth more than the entire market cap, giving you the stockyard business for free.
I think a lot of these land plays are value traps. Often the management team has no incentive to monetize its real estate holdings, and the company ends up producing poor returns on capital for many years, leading to dead money.
However, this company is interested in selling off its real estate, and cash raised will most likely be returned to shareholders in the form of dividends. Buybacks are simply out of the question, as the stock is too illiquid.
Currently, the company pays a dividend yield of about 7%, which is funded solely from the stockyard business — so you get paid to wait around while it sells off the real estate. Furthermore, the stock currently trades at a 20% to 30% discount to tangible book value.
In addition to the real estate holdings, the company also owns a 50% interest in a golf course, which it carries on the books at $0.
The business also has $2 million of cash on hand and no debt.
In conclusion, we have a company trading at a discount to tangible book value, a greater discount to probable real estate holdings, a situation where real estate is being sold off, and getting paid to wait around.
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