Author Topic: BOMN - Boston Omaha Corporation  (Read 36711 times)

Spekulatius

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Re: BOMN - Boston Omaha Corporation
« Reply #110 on: December 17, 2019, 03:43:19 PM »
Jim McLaughlin (guy running link, the billboards bidness) retired.  Also, they keep issuing stock, running an ATM program.

Issuing stock ain't a bad thing if the stock is overvalued here.
Jim McLaughlin is pushing 70, so it is understandable that he retired. I agree that issuing stock when it is overvalued makes sense. I guess the knock on BOMN is that they try to benefit from the Berkshire aura. The guys running it seem to be competent and their incentives are reasonably well aligned with shareholders. I don’t own this because I think the stock is overvalued and I don’t think the billboard business is that great of a nucleus for a company to get started. They have an embryonic surety business,  up that will take years to grow into a meaningful size.
Life is too short for cheap beer and wine.


cubsfan

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Re: BOMN - Boston Omaha Corporation
« Reply #111 on: December 17, 2019, 04:24:31 PM »
I guess the knock on BOMN is that they try to benefit from the Berkshire aura. The guys running it seem to be competent and their incentives are reasonably well aligned with shareholders.

That is a fair criticism - and I think some of you might have been at the last annual meeting. I've been to last 2 - never once has the
Berkshire name or Buffett name been mentioned. And of course, they stay out of the press, do no analyst meetings/calls or investor days or
any promotional investor work for the company.

To me, they appear to be totally aligned with shareholders. The key will be execution and the price they pay for buying new businesses.

I would agree with you that the surety business is not at all up to scale, and it definitely needs to have critical mass for the success.
But it's not been all that long and progress looks pretty good to me. The product margins, at scale, look very good.

Lastly,  no one, except outside investors, are pushing the Berkshire halo.

CorpRaider

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Re: BOMN - Boston Omaha Corporation
« Reply #112 on: December 18, 2019, 05:41:25 AM »
Yeah, to be fair its not like they go hold a marketing meeting promoting their stock to BRK investors in Omaha (like another entity which shall remain unnamed). 

Also, it is preferable/more rational to issue at 2x book than to continue buying back "a little" like an automaton (to offset dilutive comp?), while mgmt. keeps papering their cottages with those forms 4.    ;D
« Last Edit: December 18, 2019, 04:07:20 PM by CorpRaider »

mwtorock

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Re: BOMN - Boston Omaha Corporation
« Reply #113 on: December 18, 2019, 06:10:52 AM »
Yeah, to be fair its not like they go hold a marketing meeting targeting BRK investors in Omaha (like another entity which shall remain unnamed). 

Also, it is preferable/more rational to issue at 2x book than to continue buying back "a little" like an automaton (to offset dilutive comp?), while mgmt. keeps papering their cottages with those forms 4.    ;D

Damn, i went to MKL meetings in Omaha which targets BKR investors directly... I did not realize until you mention this :)

longterminvestor

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Re: BOMN - Boston Omaha Corporation
« Reply #114 on: January 22, 2020, 12:55:00 PM »
Interesting business.  Here are my thoughts:

Billboards.  After initial purchases in “faces”, BOMN management convinced a successful longtime manager to run it for them (unfortunately he is retiring) so BOMN management will be tested to find another manager of the billboard business, early headwind for a business looking to grow.  Could lightning strike twice – Adam Peterson cold called the guy – love that.  If they can continue to purchase Billboard assets that cashflow this can compound - yes at the expense of shareholder dilution however capital is not grown on trees so it has to come from somewhere.  Management has mentioned Billboard assets can be levered, recently modest leverage was applied (non-recourse to parent rhyming with Berkshire’s BNSF debt). 

Insurance.  BOMN is vertically integrating the surety business by owning both the retail agent selling and the insurance company underwriting.  BOMN is getting "two bites of the apple" as they say.  Really interesting line of business to start this strategy, surety, because surety bonds have a low, extremely low, loss ratio but one of the highest commissions in the industry.  Low loss ratio and high distribution expense to retail agents is a recipe for “disruption” for an enterprise who removes the commission expense and creates an online distribution channel that is friction-less.  From personal experience, writing 100 policies at $1000 premium paying $350 in commission is tough as a salesman and is even tougher for an insurance agency accounting team (accounting takes all the fun out of selling insurance).  The surety they are writing is high, very high volume and low low premium so there is a “moat” in the friction to make a change once the surety bond is in place and set on automatic payment – reoccurring revenue (tempted to say similar metrics to SaaS just to stir the pot but I wont…wait…I just did).  When reading the annual reports and letters, I get a sense surety is not the only line of business BOMN will be selling in the future.  Time will tell. 

Banking.  Subprime lending in the auto business is a tough way to make a living but the world needs it – in good times and bad.  There is always collateral.  Spreads on rates are high and the asset can be repo’ed with some cost however the auto auction will sell a car in hours if you have to (collateral is good, but liquid collateral is better).  There is a banking executive on the BOD of BOMN who must have insight and provide color for team.  This is a passive investment for BOMN.

HomeBuilding.  Seems as though they found a good builder in SouthEast(strong growth for retirement folks) and is considered a partner.  Don’t know much about home building – will be studying up.  Also passive investment for BOMN. 

RealEstate.  Logic has the look of any real estate company I have ever seen.  Brokerage is a great business when transactions are flowing, and when they are not overhead is low because it is a commission based model.  Property Management seems to be a growth opportunity of Logic and good/great margins with ding!ding! Reoccurring Revenue.  Property management revenue can hedge brokerage from cash flow perspective when sales are not happening.  And like any broker, they can provide financing as well (Great sales pitch - hey wanna buy some real estate?...i don’t have any money…don’t worry, we will find a bank to loan you the money).  Good news for BOMN the gentleman running the firm is purchasing shares with his own money and is on the BOD.  Lots of opportunity surrounding Real Estate transactions.  (I would hate to speculate into future but the title insurance business is ripe for disruption –  it is included in all transactions with high commission fees).  Also passive investment. 

Management.  These guys are barely 4 years in!  Hello – Rome was not built in a day.  Alex Rozek walked on to D1 North Carolina Tar Heels football team.  His middle name did nothing for him in the Tar Heel locker room – much respect for the effort and fight to make the squad.  Adam Peterson runs something like $700MM in his Magnolia Fund, no small feat for a young up and comer.  No analysts, no conference calls, no investor days, no guidance.  I solute them and hope other managements follow.  They also write a great letter, it is almost seductive how it is written.  The question I have is will this letter be written for the next 35-40 years?  Sure seems like they want to create a legacy – wonder if the font they picked was languished over similar to the Christian Bale American Psycho business card scene - silian rail font??  Long run rate – these guys are in their late 30’s/early 40’s and have years ahead of them.  Outlined above are 5 business sectors to allocate capital and grow.  BV is a metric all is watching closely and is closer to 1.3XBV.  Would love to see a female enter the board room – I believe woman are excellent allocators of capital on the whole and look at risk different than male counterparts - not better - just different. 

Execution.  Taking the cash flow from Billboards and allocating to business opportunities – new faces, insurance, or otherwise.  They like doing deals - that is clear. Overtime there will be float inside the surety business (or future insurance businesses) to provide self leverage and this could be the catalyst that puts BOMN in the running for a compounding machine.  Management has to execute on model and time is on their side if they can be patient and not listen to the noise.  Biggest risk here is dilution, I do not see management vaporizing capital (famous last words…).  I am still looking for the motivation of Alex and Adam – some have discussed steep rewards for management on comp – I speculate both already are independently wealthy and want for nothing so IMO money is not motivating them.  They speak to incentives in their letter, in my experience there are 2 ways to incentivise people – money and public recognition.  So if they already have money – they want public recognition.  How do they do that?  Build an enduring company that compounds book value and fosters a culture of excellence.   At least that’s the hope.  Still very early days.  Like I said, I love this story. 

Why did Chuck Akre sell? Curious if anyone has insight there – probably dilution risk.  Or he found something he liked better.  Or he thinks BOMN will blow up.  Very curious there. 

This is not investment advice and written more for feedback from group.  I am growing to enjoy the community and value lessons learned on the corner of berk.  Look forward to watching the BOMN story unfold over time and learning more from group.  Thanks!

CorpRaider

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Re: BOMN - Boston Omaha Corporation
« Reply #115 on: January 22, 2020, 02:32:23 PM »
Good post.  Thanks for taking the time.  I like the letters a lot too. 

Interesting on Mr. Rozek's Tarhole connection.  I was wondering how they came to be associated with the Keenan gent on the BOD.  As you may know, Henry Flagler was a (chief) partner of the robber-baron Rockefeller (also a bunch of stuff in florida named after him...he built a RR and did some stuff down there...haha).  Flagler married a (much) younger lady who was a member of the Keenan clan (I think some historians allege he had his second wife declared insane and carried on an affair with her before marrying her)...and the Keenan name is now on a lot of buildings at UNC (maybe the foolsball stadium and Keenan-Flagler is the bidness school, I think).  I wondered if they met a some prep school for scions or a regatta in Grand Cayman or something.

Seems they've had a spot of trouble in executing the vision in insurance, no?  On the home builder I would add that they (as I'm sure you noted) admire NVR and the use of land options a lot and they cite the emulation of these practices by their investee favorably. 

Curious about Akre as well.  It corresponded with the first secondary, didn't it?  He says he never sells unless the business fundies change...

Been mulling over incentives and what we can infer by the issuance.  I struggle with why one would issue keep issuing a lot more stock even at the market multiple to book (especially kind of dribbling it out ATM versus being real up front about things), if you were primarily motivated by posting a huge career CAGR...(versus goosing the size of the performance fee).

Magnolia is interesting but the fact that they are keeping their public equity hedge funds means (I think they said this) they won't hold public equities in the company which takes an arrow out of the quiver, and maybe divides attention.  I also note WEB has said public equities are offering better opportunities than private companies, generally, at the current time.
« Last Edit: January 22, 2020, 02:40:07 PM by CorpRaider »

Sombunall

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Re: BOMN - Boston Omaha Corporation
« Reply #116 on: Today at 05:12:51 AM »
What's the executive incentive comp look like? It's been awhile since I looked, but I believe they are paid a hedge fund like incentive on book value... not book value per share, but book value... I just remember the incentive comp structure being terrible and so I passed. But maybe it's different now.