There are many Warren Buffett (Trades, Portfolio) wannabe investors who have tried to duplicate his success at Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) by accumulating a diverse set of businesses, both private and public, and let them grow over time. Some that come to mind are Fairfax Financial (TSX:FFH, Financial), Graham Holdings (GHC, Financial), Biglari Holdings (BH, Financial) and Loews Corp. (L, Financial).
One of the more recent entries in this genre is Boston Omaha Corp. (BOC, Financial). Based out of Omaha, Nebraska, the company is a public holding company with four distinct businesses: broadband (telecommunications services), billboards (outdoor advertising), bonds (surety insurance) and Boston Omaha Asset Management (investment management). Within BOAM, the company holds stakes in companies involved in banking, home building, aviation infrastructure and commercial real estate services. The company's principal objective is to grow intrinsic value per share at an attractive rate, while seeking to maintain a liquid and strong financial position.
What makes this company unique among the Berkshire look-alikes is one of the co-founders and co-CEOs is actually related to Buffett. Alex Buffett Rozek is the grandnephew of the Oracle of Omaha.
Rozek does not advertise his relationship to Buffett and the company remains largely unknown. The two companies apparently have no business connection and Buffett is not believed to have any share ownership in Boston Omaha.
Founded in 2015, the company currently has a market capitalization of $586 million.
Business mix
The company owns Boston Omaha Broadband, which is a national broadband provider specializing in fiber internet services to residential and commercial customers. This segment currently operates in 17 states with over 40,000 subscribers and is experiencing strong growth rates. Revenues for this segment were $8.5 million in the first quarter.
Its largest segment is the billboard business operating under the Link brand. Link Media Outdoor is an outdoor advertising company that concentrates on static vinyl and digital billboards. It operates in 12 states across the U.S. The billboard business has a number of attractive features. There are high regulatory barriers to entry in many states that limit competition and also a low level of capital expenditures are required to maintain these types of assets. In addition, unlike so many other industries, the internet has not had a material negative effect on the outdoor ad industry. Revenues for this segment were $10.3 million for the three months ended March 31.
In the insurance segment, the company operates primarily in the surety bond industry. Since its founding in 2015, Boston Omaha has acquired five surety-only agencies as well as a monoline surety insurance company. Companies within this segment are licensed to do business in all 50 states. Revenues in this segment for the first quarter were approximately $3.6 million.
Boston Omaha Asset Management is an investment management firm with a diverse portfolio of holdings in real estate, aviation, banking and other industries.
Financial review
For the first quarter of 2023, the company generated revenue of $22.8 million, which was an increase of 40% compared to the prior-year period. Revenue increased in each of the company’s core segments.
Net billboard rentals increased 12.7% to $10.3 million, reflecting an improvement in rental and occupancy rates in many of the markets in which it operates. An acquisition in the fourth quarter of 2022 also added to sales.
Revenue from broadband services increased 109.5% from the year-ago quarter, which primarily reflects the acquisitions of InfoWest and Go Fiber in April 2022.
Premiums earned from insurance subsidiaries grew 35.8% due to increases in production.
The net loss from operations was $2.9 million compared to a net loss of $2.4 million a year ago. Depreciation and other non-cash expenses were $4.5 million in the quarter, so the company is still generating positive Ebitda.
The company maintains a liquid balance sheet with $27 million in cash and $77.8 million in short-term investments. Long-term investments are carried on the balance sheet at approximately $109.1 million. Total debt was $28 million.
Valuation
Due to a diverse set of businesses and often lumpy earnings, the company is best valued on a price-book basis. The price-book ratio over the last six years has ranged from 2.20 to 1.06. Currently, the ratio stands at 1.10. Berkshire Hathaway is currently trading at about 1.42 times book value.
Boston Omaha certainly doesn not have the storied history and reputation of Berkshire Hathaway, but it is growing faster and deserves a higher book value than today's ratio.
Guru trades
Gurus who have purchased Boston Omaha stock recently include Jim Simons (Trades, Portfolio)' Renaissance Technologies and Baillie Gifford (Trades, Portfolio). Co-founders Adam Peterson and Rozek own approximately 25% of the outstanding shares of the company.
Summary
These types of diverse holding companies make for interesting investments. It is essential buying a concentrated hedge fund without paying the exorbitant management fees.
Without prudent value investing and being patient with potential opportunities, Boston Omaha has the opportunity to increase intrinsic value over time.
