Life Insurance Company of Alabama Repurchased More Stock ($LINSA $LINS)

We mentioned in November that LICOA's third quarter regulatory financials showed that the company repurchased a huge block of stock at an accretive discount to tangible book value.

We knew that on June 14th, a block of 205,221 LINSA (LICOA non-voting) shares had traded for $24 per share, and that the same block traded again on July 22nd for $32 per share. That amount of stock was a huge percentage (~20%) of the company. But we did not know who had bought for $24 (a $4.9 million purchase) or $32 ($6.6 million). Subsequently, we saw in the regulatory financials (which were released in November) that the company made a $6,576,662 repurchase of treasury stock, and presumed that they bought this block for $32.05 per share.

We have since learned that this block sale was between an investment bank and broker-dealer dedicated to the community banking sector (JWTT Inc.) and LICOA. We have also learned that LICOA bought more stock from JWTT on October 14th: a smaller purchase of $32 per share for 2,131 shares. So it would appear as though the company has an appetite to make repurchases at accretive prices now. (Meanwhile, very little stock has traded since a $24 print in early November. It is unclear whether the market is incorporating news of these repurchases yet.)

The information below is from a portfolio review of LICOA's investments dated as of September 30, 2021. Something interesting is that LICOA has significant unrealized gains in its investment portfolio (market value $11.7 million greater than book value), which comes from fixed income securities.

When looking at LICOA tangible book value per share, it may be appropriate to add back certain reserves in the statutory financials ("interest maintenance" and "asset valuation"), and also make a market value adjustment (less a reserve for deferred taxes) to the investment portfolio, in order to better approximate the GAAP book value. We will take a look at these calculations in the upcoming Issue of the Oddball Stocks Newsletter.

Also noteworthy in the table above is the income on the bond portfolio - about $3.5 million after tax. The company has earned far less than this in recent years. As an insurance company, it takes risk and uses leverage (from policyholder float), only to deliver income and rate of return that is less than the unleveraged income and return on the bond portfolio.

Hence the need for shareholder activism... 

As the minority shareholders (who sued the company in the US District Court for the Northern District of Alabama in 2019) state in their complaint,

The economic purpose of an insurance company, from a shareholder perspective, is to raise funds from policyholders and invest them at a profitable spread. Using borrowed money (“Float”) from the insurance customers as leverage and investing it in a bond portfolio ought to offer shareholders a higher return on their capital. But because the controlling shareholders of LICOA overpay themselves and otherwise waste money, the return on equity that minority shareholders receive is lower than the underlying yield on the bond portfolio. The minority shareholders bear all the risk of an insurance company's financial leverage (where the total assets are approximately three times the shareholder capital) but without the benefit of any increased return.

Those shareholders are currently awaiting a ruling from the Court on the company's motion to dismiss the suit.

Previously, regarding Life Insurance Company of Alabama:

Be sure to check out the Concerned Shareholders of Life Insurance Company of Alabama website as well.

Paradise, Inc. Announces "Final and Liquidating Distribution," Falling Short of 2019 Estimate

Paradise, Inc. was a net-net idea that Nate posted way back in July 2012 - so seven years ago. At that point, shares were trading at about $18. We posted an update in June 2019 when the company announced plans to liquidate. 

At that time, the company's estimate was that the "aggregate amount of distributions to shareholders as a result of the Asset Sale and Liquidation Plan will be between approximately $18.0 million and $25.0 million, or approximately $35 to $48 per share based on 519,600 shares outstanding".

The company just mailed an announcement (below) that the final distribution will be $4.50 per share. We thought it would be interesting to compare the distributions that were actually received with the estimate that was given in 2019.

The company distributed $10 in September 2019, $4 in July 2020, and $10 in September 2020. With this final $4.50 payment, it will bring the liquidation proceeds to $28.50. That is below the low end of the liquidation value estimate that the company published in its proxy statement for the plan of liquidation. There have been no communications to shareholders explaining the shortfall between the estimate and what has been distributed.

One issue here is that the company terminated its SEC registration in 2019 after approving the plan of liquidation, and has not subsequently provided any financial statements to shareholders. We don't know whether the shortfall was because of lower than expected asset sales proceeds... or higher than expected SG&A costs.

There were a couple of corporate governance concerns with Paradise even prior to the liquidation. On Twitter, "DoubleOak Equity" tweeted, "$PARF announced in Feb18 it was exploring strategic alternatives. Didn't disclose until 12/7/18 that it had entered into a retention agreement effective 10/31/17 with CFO with $75K bonus paid when company sold." In the proxy statement, payments of severance and a special bonus were projected to be an eye-popping $3.2 million - that is over $6 per share.

We've seen in the past with other liquidating Oddballs, there's a temptation for managements to stretch out the liquidation so that they can remain on salary, but this is bad for shareholders because it (obviously) reduces the eventual proceeds due to the overhead cost but also reduces the IRR of the investment due to the delay.

There are some Oddball investors on Twitter talking about this situation, if you're curious for more: (@OzzieCapital, @coleperkins121, @chrisvirnig, @doubleoakequity).

This case is noteworthy because investors tend to take the management liquidation estimates at face value - and they often are indeed conservative.

PARF - Final Liquidating Distribution - December 2021 by Nate Tobik on Scribd

Oddball Stocks Newsletter Excerpt: Allied First Bancorp from Issue 36

We wrote an update on Allied First Bancorp in Issue 36 of the Oddball Stocks Newsletter:

AFBA is a standout as a very small bank with a very high return on equity that trades at a 12% discount to tangible book value as of June 30, 2021. Based in Oswego, Illinois (southwest Chicago exurbs), it started as a credit union for American Airline pilots in 1994 and converted in 2000. Our guest writer Catahoula first mentioned it in Issue 26 (August 2019) at $1 so it has returned 8.5x since. The current market capitalization is $16 million at $8.50 per share which is 88% of TBV. (We use a 1,911,892 total share count which assumes that 139,995 shares of convertible preferred stock that were issued under TARP are converted to common.)

OBN - AFBA - Issue 36 (August 2021) by Nate Tobik on Scribd

Oddball Stocks Newsletter Excerpt: "Feature: Paired Comparisons of OTC and NASDAQ-Listed Banks" from Issue 35

Our Feature in Issue 35 of the Oddball Stocks Newsletter was on paired comparisons of listed and unlisted banks, highlighting the valuation discounts available in OTC banks: 

It is difficult to look at the paired comparison of Bank of the James and Centric Bank without concluding that Centric is the better bank. Centric is certainly more efficient and more profitable. But the valuation difference is thirty percent of tangible book value. We find this really fascinating because these paired comparisons, using industry competitors of similar size, demonstrate a discount that arises purely by virtue of being OTC-listed instead of public. If the Oddball Stocks Newsletter stands for anything, it is for harvesting this OTC valuation discount.

OBN - Paired Comparisons of OTC and NASDAQ-Listed Banks - Issue 35 (June 2021) by Nate Tobik on Scribd

Oddball News Updates ($GWOX $PDER $UNIF $VWTR)

Interesting news at our Oddball companies this winter. Lots of special dividends, big asset sales, corporate transformations. It is coming at a time when value is cheap relative to growth. See this FT article, "US small-cap stocks trade at historic discount to corporate titans".

The Goodheart-Willcox Co., Inc.
Nate wrote about GWOX on the blog in October 2012 when it was trading for $72. Has paid $32.25 in dividends since then... and is paying a $50 special dividend (!) this month. Not to mention earnings per share of $15 for the 1H of fiscal year. Shares are currently $180 bid and no offer. See our previous posts: tender offer (March 2019), tender offer results (June 2019), 2019 annual report (July 2019), and 2020 annual report (July 2020).

Pardee Resources Co.
Pardee has declared a nice special dividend of $15 vs $4 last year and $3 in 2019. We have covered PDER extensively in the Newsletter, as well as on the blog. 

We had a great idea last month. Imagine if the Keweenaw Land Association copper royalty stub buys Pardee in a hostile takeover (for stock), fires the expensive board, sells the agricultural investments and some of the timber, and retains the coal and oil and gas. Maybe they buy Beaver Coal too, for good measure.

U & I Financial Corp
Community bank UNIF announced a stock repurchase program, starting December 1, 2021, under which the Company may repurchase up to $3.0 million of its outstanding common stock. See some of our Newsletter coverage of UNIF, part of our long campaign of content relating to small banks (example) since the covid crash.

Vidler Water Resources, Inc.
Press release from VWTR: "Vidler Water Resources, Inc. announced today an alternative energy company has exercised its option to purchase 53,750 Long Term Storage Credits (“LTSC”) at the Company’s recharge facility in the Harquahala Valley, Arizona for $400 per LTSC. The Company expects the sale to close in 2021 and to generate revenue of approximately $21.5 million." 

We did an interview in the Newsletter with fund manager Eric Speron who is on the board of Vidler (as well as Keweenaw).

Bolloré
FT article: "Bolloré Group in talks to sell African ports and logistics business". Two of our guest writers talked about Bollore in recent Issues of the Newsletter.

Oddball Stocks Newsletter Excerpt: The Goodheart-Willcox Company, Inc. from Issue 34

We wrote an update in Issue 34 of the Oddball Stocks Newsletter about The Goodheart-Willcox Company, Inc.:

One of the amazing things about the coronavirus “pandemic” of the past is how it has created winners and losers – even companies in the same industry. For example, as we will see below, educational publishing company Goodheart-Willcox (GWOX) had a great 2020. Meanwhile, its fellow educational publisher William H Sadlier, Inc. (SADL; which we won't cover in this Issue) did not have a great 2020. But the dispersion in performance this past year was nothing new, it just continues the trend of the past several years where things have been getting better at GWOX and worse at SADL.

Obn - Gwox - Issue 34 (March 2021) by Nate Tobik on Scribd

Oddball Stocks Newsletter: "Small Banks and the OTC Discount" from Issue 34

Our Feature article in Issue 34 of the Oddball Stocks Newsletter was about inferring the size of the "OTC discount" by comparing unlisted and listed banks.

We have noticed recently that small banks, and especially OTC-listed banks, are lagging this recovery. This may be an opportunity to replay the reopening trade that happened in liquid public banks with a set of less liquid public and private ones that are still cheap even with the same or better metrics. To give you an example, among two sets of banks that we track (NASDAQ and OTC) which were each chosen last year for cheapness, here is how they are priced relative to tangible book value.

Our sample of OTC-listed banks is 2100 bps cheaper on tangible book value than our sample of publicly traded banks despite earning a significantly higher ROE, having higher capital, having lower non-performing assets, a touch better demand deposits, and buying back more stock year over year. Note that both sets (which number a couple dozen banks each) are very small banks with average market capitalization under $500 million.

We find this really fascinating because for the first time, using sets of companies in the same industry that are highly comparable, we are demonstrating a discount that is stemming from not being public – or, conversely, from being OTC listed. If the Oddball Stocks Newsletter stands for anything, it is for harvesting this OTC valuation discount.

OBN - Small Banks and the OTC Discount - Issue 34 (March 2021) by Nate Tobik on Scribd