Boston Omaha Corporation (NYSE:BOC) offers a compelling buying opportunity due to revenue growth in all business segments, significant insider buying activity, a new CEO focused on improving the current segments, and a recent $20 million share buyback program.
The 60% drop in their share price since 2021, accompanied by almost $2.5 million of insider buying activity between June and May, and a $20 million share buyback program announced in July, makes me convinced that their shares are cheap, even at the time of writing this article.
Although there are some risks that I’ll discuss, I have strong confidence in Boston Omaha. As proof of my conviction in this stock, I have my skin in the game, by owning shares, and options, at the time of writing this article.
My rating is a Strong Buy. I present my rationale below.
Business Overview
Boston Omaha is a diversified holding that operates across 4 segments:
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Outdoor advertising: this involves the acquisition, development, and operation of billboard displays, through their subsidiary, Link Media Holdings, LLC.
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Broadband services: with this segment, they aim to expand internet accessibility in regions where traditional broadband services may be limited or unavailable. This segment is operated by Boston Omaha Broadband, LLC.
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Insurance operations: the insurance segment, represented by General Indemnity Group, LLC, provides surety bonds, and other insurance services, focusing on niche markets that require specialized insurance solutions.
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Asset management: this segment, operated by Boston Omaha Asset Management, LLC, includes the management of investments in real estate and financial securities.
To give you an idea about the weight of each segment in the total revenue, I have included a table below using reported figures from their Q1 2024 earnings, and FY 2023 results.
Business Segment | Q1 2024 Revenue | Q1 2023 Revenue | FY 2023 Revenue | FY 2022 Revenue |
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Billboard Rentals, Net | $10,696,660 | $10,302,223 | $42,940,369 | $39,244,726 |
Broadband Services | $9,683,429 | $8,539,906 | $35,340,502 | $28,627,271 |
Premiums Earned | $4,003,059 | $3,107,273 | $13,932,659 | $10,649,089 |
Insurance Commissions | $502,688 | $476,126 | $1,884,007 | $2,050,838 |
Investment and Other Income | $666,895 | $390,257 | $2,156,199 | $662,270 |
Table I. Evolution of revenue per business segment
As a side note to the reader, premiums earned and insurance commissions are part of their insurance segment.
I really like the diversification of this holding. It’s unique compared to anything else I’ve seen, so doing a comparison analysis will be challenging, to say the least.
Nevertheless, I’ll use different, non-traditional methods, to assess its value.
Current Performance
The results in Q1 2024 were mostly favorable, showing an increase in revenue in all their business segments. I provide the details below.
They reported a total revenue of $25.55 million for Q1 2024. This was a 12% YoY increase from $22.82 million.
As shown in Table I (previous section), this growth was driven by revenue increases in all their business segments, which I view as a big achievement.
In Q1 they reported a positive operating cashflow of $2.42 million, compared to $1.37 million for the same period in 2023. That is a 77% YoY increase.
Their total assets in Q1 stood at $757.34 million, slightly down by 1.4% from $768.21 million in Q4 2023, indicating certain stability in the company’s asset base.
Another financial indicator that remained stable was the book value per share. In Q1 it was $17.10, compared to $17.19 at the end of December 2023, indicating a maintained equity position despite operational losses, which is a topic that I will cover below.
Despite Growth In Revenue, They Incurred A Net Loss
Let’s begin with the dessert. Their net loss attributable to common shareholders was $2.81 million, or -$0.09 per share, slightly improved from the $3.32 million loss in Q1 2023.
I discuss below some of the factors contributing to this loss.
The holding experienced an increase in depreciation and amortization costs of 18% YoY, totaling $5.34 million.
Due to the current inflation, employee expenses reached $8.63 million, making up 33.8% of total revenues. This is a slight increase from last year’s $8.20 million.
The holding recorded an equity loss in unconsolidated affiliates of $10.17 million, mainly due to their 19.8% stake in Sky Harbour.
As a quick side note, Sky Harbour is a developer of private aviation infrastructure, focused on building, leasing, and managing business aviation hangars. More information about Boston Omaha’s investment in Sky Harbour can be found in this article.
Despite the $10.17 million loss in Sky Harbour, I am not overly concerned, given that this loss was balanced by $7.79 million in other investment income, mainly from Sky Harbour warrants.
As an additional note, these warrants can be converted into Sky Harbour Class A common stock at $11.50 per share, until January 25, 2027.
Profitablity-wise, I am confident that the broadband segment will successfully develop their FTTH infrastructure, as they gain contracts with more developers. In their latest 10-Q, management mentioned their intentions to further expand their broadband services in Arizona, Nevada, and Utah.
I have included a table below with the net income/loss per business segment.
Business Segment | Q1 2024 Net Income/Loss ($) | Q1 2023 Net Income/Loss ($) |
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Billboard Operations (LMH) | 1.26 | 1.07 |
Broadband Operations (BOB) | -1.72 | -1.65 |
Insurance Operations (GIG) | 0.68 | 0.53 |
Asset Management Operations (BOAM) | -0.77 | -0.56 |
Table II. Evolution of the net income/loss for each business segment.
Strategic Initiatives
As you can see in the table above, their biggest net loss was in the broadband segment. Therefore, I expect their strategic initiatives to focus more on this segment.
As mentioned earlier, I support their plans to further expand their broadband services in states like Arizona, Nevada, and Utah. Additionally, they plan to start operating in a new state, Florida.
Within their broadband segment, their FTTH infrastructure has a competitive edge over traditional cable operators, with higher data transmission rates and better speeds. Given that they mainly sell this service to property developers, if we see an improvement in the real estate market, Boston Ohama is well positioned to grow their FTTH infrastructure. As to when this improvement in real estate will happen, it will depend on the evolution of the interest rates.
They also mentioned an expansion in their insurance segment, with a focus on servicing small contractors, businesses, and individuals in need of surety bonds. I like how specialized this segment is, and it’s great to see that both the revenue, and net income in this segment have increased over the past year.
Also, management mentioned in the latest 10-Q a strong focus on managing employee costs and general administrative expenses to further improve this segment’s profitability.
In the outdoor billboard business, they are looking into using digital display technologies to increase their margins. However, their big challenge here are regulations, and zoning laws, that restrict the construction of new billboards. Things get even more complex given that each area has a different billboard regulation.
Given that this segment experienced growth in the past year, in both its revenue and net income, I am not too concerned about the impact of these regulations on their future expansion plans.
Although I don’t expect them to acquire more businesses this year, they have a shelf registration statement allowing them to sell up to $500 million in securities. This is a good amount if they spot any promising acquisitions, although I think the new CEO is not keen on new significant acquisitions, based on this press release. I highly favor his decision, at least in the short term.
Risks
If management isn’t careful, Boston Omaha could be classified as an investment company under the Investment Company Act of 1940. If this happens, it could significantly impact the company’s operations, management, and capital structure due to stricter regulations.
In their 10-Q, they mentioned that their broadband services segment is facing challenges related to competition and market penetration. In addition, their expansion plans in Florida could bring some additional risks.
I see some regulatory risks as well. For example, the billboard division faces restrictions on building new billboards due to zoning laws and other regulations.
The insurance segment has to meet state licensing requirements, which impose strict standards on capital, management, and operations. Failure to comply with these regulations could lead to penalties, limited market opportunities, or even the inability to operate in certain areas.
The recent departure of Co-CEO Alex Rozek can also be viewed as a risk. While I see Adam Peterson as highly qualified and capable of running the company, there is a chance it might take him some time to fully familiarize himself with all the different business segments.
Outlook
Looking ahead, I am confident about future revenue and net income growth in all business segments within the holding.
Profitability-wise, some improvements are still required in the broadband segment. I do favor their strategic initiatives to improve this segment, and I think the 13% revenue growth in the past year is a good sign.
In my view, lowering the operating expenses in this segment could increase their profitability, although broadband businesses have high operating expenses, by their nature.
With management’s plans to further expand their broadband services in Arizona, Nevada, and Utah, and begin expanding into the new Florida market, I believe their performance in this segment will significantly improve by the end of this year.
As you probably know from reading my previous articles, my investment style favors contrarian insider buying activity. When looking at their latest transactions, it is clear to me that management believes the share price is cheap, especially after the 65% selloff since September 2021.
The amount of insider buying activity between May and June this year is close to $2.5 million. The CEO, CFO, and several directors were among the insiders who made these purchases.
They also announced a $20 million share buyback program for their Class A common stock. The program is set to start around August 15, 2024, and will run through September 30, 2025.
I see the share buyback program as another indication of management’s conviction that the shares are cheap.
Finally, the icing on the cake is the validated $13 support level that you can see on the chart below.
In my view, this is a great opportunity, with a tremendous upside, and limited downside.
As you know, I hold positions in all the stocks I rate as a Strong Buy when I write an article. I believe this rating should always come with skin in the game.
In this case, I hold both options and shares in Boston Omaha, given the high conviction that I have in this play. I plan to trim some of these positions at the $20 price level, which might act as resistance, although I believe the price will eventually break through this mark.
A quick look at their ratios shows that they are mostly overvalued against their sector, but undervalued against their 5-year average.
As a side note, given how unique and diversified this holding is, I don’t rely on their financial ratios to determine if the business is undervalued. Therefore, I don’t go into the details of these ratios.
Conclusion
In my view, Boston Omaha is a compelling buying opportunity.
I favor their diversification and their growth in all business segments over the past year, with strong strategic initiatives, especially in the broadband sector, and a new CEO focusing on improving the current segments, rather than acquiring new ones.
I strongly believe the share price is cheap based on the insider buying activity between May and June. Additionally, their recent announcement of their $20 million share buyback program further reinforces my belief that management thinks the shares are cheap.
Looking at the weekly chart, the fact that they bounced on a validated support level, further builds my confidence in this stock.
In regards to their financial ratios, I am not keen on comparing this holding with any other company given their high level of diversification. However, a quick look at their ratios shows that the majority are below their own 5-year average. I see this as an additional point to my bull thesis.
For these reasons, I rate Boston Ohama as a Strong Buy, and I put my skin in the game by owning shares and options at the moment of writing this article.
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