Broyhill Asset Management on The St. Joe Company

Baron Rothschild, an 18th century British nobleman, is credited with saying, “The time to buy is when there’s blood in the streets.” Fast forward to today, and one might suggest that, “The time to buy is when there’s oil in the water.” Crisis creates opportunity for the disciplined investor, and the unfortunate disaster caused by the BP Blunder has produced one of the most compelling long term values we have ever come across. As they say, “ever” is quite a long time.


We recently watched a certain TV personality jumping up and down, like Jo-Jo The Idiot Circus Boy with a pretty new pet, and yelling at his viewers to “Sell, Sell, Sell” The St. Joe Company (JOE) after the stock had lost nearly half of its market capitalization in under two months. Viewers were told, “I know it’s got a strong balance sheet. SO WHAT! It may have acquired 477,000 acres of land in North West Florida at a very low cost. SO WHAT! . . . The risk from the oil spill is no longer a question of if, it’s not even a question of when. Now the only question is how much is this going to hurt? Could it wipe out the company??”


We’ll spare the suspense here and answer that one right up front – not a chance. The St. Joe Company has $39.5MM in debt, $27.1MM of which is offset by pledged treasury securities, and $30.6MM in maturities after 2014. The company has total liquidity of $286MM comprised of $164MM and $122MM of cash and credit facilities, respectively. A strong balance sheet may not be of much importance to speculators, but it provides long term investors with a comfortable security blanket. Not to mention, the company has 577,000 acres of land, but what’s a 100,000 acres if you’re not interested in the assets a company holds anyhow?


Later in the segment, the audience is told that, “I am not saying this company is going to go bankrupt. It’s probably not. That’s what I’m saying about BP.” We thought that last comment was particularly interesting, considering that on May 3rd, with BP trading over $50, our favorite TV personality explained that “BP’s debt to capital is really incredible” and on May 10, he told viewers that he was purchasing shares of BP for his charitable trust at just under $50. “If you get any good news at all, you’re at the bottom.”


Which leads us to our next question – why doesn’t the same hold true for JOE, a stock that is already selling at half the price it was trading at less than two months ago, with ZERO responsibility for the spill? Instead, viewers are told, “We cannot quantify the downside.” While this is certainly the case for BP, who’s costs and liabilities are rising by the day, anyone remotely interested in buying discounted Florida property, and willing to take the time to actually analyze the company’s assets, can “quantify the downside” in JOE pretty easily. At a minimum, we can get a sense for what the stock is currently pricing in. To help us determine the risk of a permanent loss of capital, we ask ourselves a few straightforward questions when considering any investment opportunity:

1. Is the investment within our Circle of Confidence? Can we describe our thesis in one paragraph?
2. Can we confidently estimate value in relation to price? What is an appropriate Margin of Safety?
3. Does the business have a moat? What is the firm’s competitive advantage?
4. Is the business run by honest and able people? Is management an efficient steward of capital?
5. What can go wrong? How much do we stand to lose?
6. Are we willing to invest a large part of our capital in the business?

These questions form the foundation of our investment thesis in The St. Joe Company, which is outlined below:


Buy When There’s Oil in the Water (Jun-10)