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).

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

Oddball Stocks Newsletter Excerpt: "Delaware Chancery Corner" from Issue 33

Most Issues of the Oddball Stocks Newsletter contain a section of "General Commentary" at the end, and a frequent subsection is something that we call "Delaware Chancery Corner" - an update on recent opinions of the Delaware Chancery Court that are relevant to minority shareholders in small companies:

In Issue 31, we mentioned a Delaware Chancery case (Sahara Enterprises) that established that in
Delaware shareholders have an absolute right to know how “directors and senior officers are
compensated and whether they are the beneficiaries of any related-party transactions.” This Delaware
Supreme Court opinion seems to push the law further in shareholders' direction.

OBN - Delaware Chancery Corner - Issue 33 (January 2021) by Nate Tobik on Scribd

Oddball Stocks Newsletter Excerpt: U & I Financial Corp from Issue 33

We wrote an update on U & I Financial Corp., in the Oddball Stocks Newsletter, Issue 33:

The “K-Banks” are known for being a good lending source for Korean-American small business borrowers. It is an interesting niche since there are barriers to entry (like language fluency) that make it harder for other banks to serve these customers. The K-Banks seem to focus on lending to their base and staying very well capitalized. They are less aggressive about buying back stock and dividend payments are not always consistent. UNIF has not paid a dividend since 2018. FIEB has not paid a dividend since 2016. OPBK pays a regular dividend (currently yielding 3%) and bought back stock last year, but it does not trade at a TBV discount.

It is a recurring theme with Oddballs and value investing: if there isn't something a prospective investor could complain about, it isn't going to be cheap. The question is pricing the flaws. The K-Banks we have mentioned (FIEB, OPBK, UNIF) are all pretty similar but OPBK is NASDAQ listed and better about returning capital to shareholders. It is also much more expensive.

OBN - UNIF - Issue 33 (January 2021) by Nate Tobik on Scribd

Oddball Stocks Newsletter Excerpt: Allied First Bankcorp from Issue 33

We wrote an update on Allied First Bancorp in the Oddball Stocks Newsletter, Issue 33:

Banks' 2020 results have been rolling in the past few weeks, and the standouts in various categories tend to capture our attention. The highest ROEs we have seen, which happen to trade at big discounts to TBV too, are Allied and CIB Marine (CIBH). The cheapest bank to TBV, and one of the most overcapitalized, is Bank of Utica. Another observation is that OTC banks with the same or even better ROE, capitalization, NPAs, demand deposits, and buyback history trade far cheaper to TBV than banks that are NASDAQ listed.

OBN - AFBA - Issue 33 (January 2021) by Nate Tobik on Scribd

Oddball Stocks Newsletter Excerpt: "Bank of Utica" from Issue 32

We wrote an update on Bank of Utica in the Oddball Stocks Newsletter, Issue 32:

We brought up Bank of Utica in the Small Bank Feature article in this Issue, and the situation is the same as every other time we have mentioned it: big discount to tangible book value, very overcapitalized, but stubbornly refusing to buy back stock. Often when we see an Oddball management making an error like this, the reflexive answer is that they are dumb. However, we have discovered something that makes us think that lack of intelligence is not the problem here.

OBN - BKUTK - Issue 32 (November 2020) by Nate Tobik on Scribd

Oddball Stocks Newsletter Excerpt: "Small Banks" from Issue 32

This was our Feature story in Oddball Stocks Newsletter, Issue 32, in November 2020. As we wrote,

As long as covid goes away (either through vaccination or herd immunity) in the early part of next year and borrowers who have deferred resume their normal payments, the current valuations will look cheap. There are certainly many bankers feeling sanguine about their loan portfolios given the astonishing number of share repurchases that have been conducted or announced by banks this fall and winter. Profitable companies buying back stock is a great sign, but we should always question why we are being presented with an opportunity that appears juicy. Perhaps the explanation is in something that Gator Capital wrote about in its October letter; a lack of generalists interested in the bank sector. With that valuation and that much excess capital, and a management inclined to repurchase shares, there seems to be a good chance that shares recover to where they were pre-covid. We also very much like the signal of bankers announcing share repurchases – not just the implications for individual banks but for the sector as a whole. They can see what is happening with their borrowers and they have decided to spend capital on accretion instead of hoarding it.

OBN - Small Banks - Issue 32 (November 2020) by Nate Tobik on Scribd