Vulcan, still plenty of value to be found

I last talked about Vulcan International in September 2015, since then a lot more information has come spilling out about this secretive company.

For the uninitiated, this is a company that is extremely secretive and refuses to release financials to shareholders without a signed NDA.  When this happens it’s usually the case that management is either stealing outright from shareholders, or trying to hide an enormous amount of value.  

The company owns a money losing factory in Tennessee, interest in a building in Cincinnati, and timberland in Michigan.  They also own a sizable amount of marketable securities which dwarf any other asset on their balance sheet.  At the end of 2016 they had $139m in marketable securities, compared to $5m in other assets.

In 2016, the company earned $1.6m, or $1.77 per share, up from $1.235m in 2015, or $1.35 per share.  There are 1,999,512 shares issued and 911,534 shares outstanding.  Comprehensive income, which includes gains from their marketable securities, is significantly higher at $18m in 2016 or $19.73 per share.

The majority of the company’s marketable securities primarily consist of PNC and USB stock.

In the early 2000s a shareholder requested, and received a breakdown of their portfolio of security holdings.  A friend recently went through and updated those old holdings with their 2018 values to include splits and dividends.  As you can see from below, just the security holdings below are significantly more valuable than the company.  It's also worth considering why Vulcan isn't considered an investment company, and regulated as such considering the majority of their value is public stock investments.  (hint, any SEC regulators reading this, and I know that some do, please take a look?).

Utilities Shares Adj Shares Total Dividends Share Value

Vodafone Airtouch PLC (Symbol: VOD) 20016            16,027  $            573,130  $            478,235
Verizon (VZ) shares received in VOD spin 2/24/14 ratio .263 : 1               4,215  $               40,464  $            209,359
Verizon (VZ) 32814            36,608  $            982,960  $         1,818,319
IDARQ spin-off 11/20/06
FRCMQ spin-off 4/01/08
FTR spin-off 7/02/10 ratio .24 : 1               8,786  $               29,747  $              74,329
Bellsouth (now AT&T) (T) 77904          103,222  $         2,090,000  $         3,612,770
acquired 1/3/07--as of 12/29/06 dividends received, 1.325 shares of T            77,904  $            239,170  $                       -  
Cincinnati Bell (CBB) 214100            42,820  $                       -    $            650,864
Convergys (CVG) 182000          182,000  $            329,420  $         4,317,040
Duke Power (DUK) 25000            14,313  $            571,310  $         1,119,596
FPL Group (now NextEra Energy) (NEE) 32375            64,750  $         2,130,000  $       10,500,508
SBC Communications (now AT&T) (T) 109982          109,982  $         2,620,000  $         3,849,370
Qwest Comm. (now CenturyLink) (CTL) 15231 2534  $              45,435
FairPoint Comm. (Verizon spin) (now Consolidated Comm.) (CNSL) 468  $                 5,157
Frontier Comm. (Verizon spin) (FTR) 8214  $              69,490
Enbridge (Spectra Energy (Duke Power spin)) (ENB) 12300  $            361,497
Financial
PNC Financial (PNC) 659090          659,090  $       17,530,000  $       95,574,641
U.S. Bancorp (USB) 783441          783,441  $       10,810,000  $       39,501,095
Other
California Coastal Communities 447 447  $                       -  
Prudential Financial (PRU) 259 259  $              27,749
Principal Financial Group (PFG) 6165 6165  $            376,373
MM Companies 100 100  $                       -  
Piper Jaffray (U.S. Bancorp spin 12/31/2003) (PJC) 7834 7834  $            647,480
Grand total  $       37,946,201  $     163,239,308
Per share $41.63 $179.08

What's even more interesting is how I obtained the company's financials last year.  The sister of the Chairman sent them to me in an unmarked envelope.  No NDA, no description, just raw financials.

Maybe there is some discord in the family and some of the siblings want something to happen?  Who knows.

What stands out when you look over the financials (link here) is that this company needs to dump their Tennessee operations.  The company loses money before dividends primarily due to their manufacturing subsidiary.  A few years ago I spoke to a shareholder who noted that it's been a few decades since they made money on manufacturing.  Just think of all the money incinerated from that factory, it's mind-numbing.

But beyond the ball and chain hanging around this company's ankles the rest of their assets are extremely valuable.

As a friend put it, (paraphrase) "A company like this is like buying gold in North Korea, it has value, but will you be able to get it out?"  Now that North Korea is opening up it's possible to say that anything can happen.  Maybe Vulcan is next!

Disclosure: Long a single share

3 comments:

  1. VULC is worth more than just the value of its stock portfolio. The company owns 14,000 acres of timberland somewhere in the Upper Peninsula of Michigan, which I value at $1,000 an acre, or $14 million.

    Though the factory in Tennessee loses money, I think the land has value, as it's close to a state university, and the city of Clarksville is growing fast. In fact, Clarksville may become the fourth largest city in Tennessee as early as 2020 (see https://www.newschannel5.com/news/clarksville-sees-major-growth ). Let's say the land (about 32 acres) is worth $3 million.

    Many people forget, when valuing PNC stock, that PNC owns 22% of Blackrock, a stake worth $18.2 billion. So PNC's true P/E ratio is lower than it appears.

    Also, I think it's only reasonable that whatever is left of the dividends that VULC receives on its stock portfolio, after the Tennessee factory loss, deserves some sort of multiple. By my calculations, VULC should receive over $4/share in dividends this year, before accounting for the loss from the Tennessee factory.

    The $17 million for the Michigan and Tennessee land value, adds $18.65/share to the value for VULC shares. So the total value for VULC is close to, if not more than, $200/share, in my opinion.

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  2. How do you know they did not sell any of those holdings since the early 2000s?

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    Replies
    1. Those with continual access to annual reports confirm the holdings have been stable, and growing in line with this sort of growth.

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