Boston Omaha Corp. (BOC, Financial) sounds like a new fast-casual steak restaurant chain, but instead is a public holding company with businesses engaged in various sectors, including advertising, insurance, telecommunications and real estate. The company's principal objective is to grow intrinsic value per share at an attractive rate, while seeking to maintain a strong financial position.
If it sounds similar to the long-timer business model of Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial), it is. Some of these Berkshire wannabes have had great success and some have not. Boston Omaha is slightly different in that there is a distant Warren Buffett (Trades, Portfolio) connection.
Boston Omaha is co-managed by Alex Buffett Rozek, the grandnephew of Buffett. He is the grandson of Doris Buffett Rozek, who was the oldest sister of the legendary investor. She has been recognized for her global philanthropic efforts before her passing in 2020.
However, Rozek does not prmote his family ties to Buffett as the company remains largely unknown. The two companies apparently have no business connection and Buffett is not believed to have any share ownership in it.
Company description
Boston Omaha is the parent company of a mix of both wholly-owned and minority-owned businesses. Its 100% owned subsidiaries include an outdoor billboard company with 3,200 billboards and 6,000 advertising faces and an insurance subsidiary that is involved in property and casualty insurance and surety insurance brokerage. In 2020, the company acquired two rural broadband providers to enter the telecom space. The largest of these companies is the billboard segment, which generated over $8 million in revenue for the second quarter of 2021.
The outdoor advertising business has a number of attractive features. There are high regulatory barriers to entry in many states that limit competition. There is low level of capital expenditures to maintain these types of assets, both static and digital. In addition, unlike so many other industries, the internet has not had a material negative effect on the outdoor ad industry. Revenue for out-of-home advertising has continued to rise in recent years.
Since its inception, Boston Omaha has made minority investments in commercial real estate, residential home construction through Dream Finders Homes (DFH, Financial), banking and others. The value of these marketable securities as of Sept. 30, 2021 were approximately $80.3 million.
Boston Omaha enters the SPAC world
In October 2020, the company created a special purpose acquisition company called Yellowstone Acquisition Co. (YSAC, Financial), raising almost $140 million. It took almost a year to find the right merger and acquisition company, but a deal was reached in early August to combine with Sky Harbour Group (SKYH, Financial). The company provides real estate (hangers) and other services to the private aviation market. Sky Harbour currently has five locations in Texas, Tennessee, Florida, Colorado and Arizona. The deal closed on Jan. 22.
It’s possible the Boston Omaha management team knows something about private aviation as Rozek’s great uncle’s company has owned Net Jets since 1998. On the other hand, Rozek was only 18 years old at time. This appears to be a great addition to the company, offering both another diverse business mix and opportunities for growth.
Potential $100 million equity offering
On Sept. 29, the company entered into an at-the-market equity offering program with Wells Fargo Securities. The offering outlines that the company may sell shares going forward at any time with a value up to $100 million. No specific purpose or use had been determined at the time of the agreement.
Valuation
The company’s stated goal is to increase intrinsic value per share over time. Most holding companies with the Berkshire-style approach are valued at book value per share. Boston Omaha’s book value per share as of Sept. 30, 2021 was $16.92 compared to $14.01 on Dec. 30, 2020.
That means the stock is trading at about 1.6 times book value. This compares to Berkshire at about 1.4 times book value. Of course, Berkshire has a $711 billion market cap compared to Boston Omaha at a $858 million market cap, as well as a storied history.
Boston Omaha is growing faster than Berkshire by a wide margin, though, so based on historical smart capital allocation decisions and the presumption they will continue going forward, as well as the near-term potential accretive nature of the Sky Harbour combination, a premium valuation for the stock may be warranted for the foreseeable future.
