November 29, 2009 - 6:51am EST by
2009 2010
Price: 30.00 EPS $16.00 $16.00
Shares Out. (in M): 23 P/E 19.0x 19.0x
Market Cap (in $M): 678 P/FCF na na
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT na na

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PICO holdings is US based company focussed on developing real estate, insurance and water rights. The company is based in San Diego and is led by John Hart. The goal of the company is "Quietly and intelligently pursuing our business with the goal of increasing book value per share."

PICO is trading slightly above their stated book value (25,25 USD per share) which looks conservative. The book value is made up of the following assets:

in million USD Book Value Book Value Per share Intrinsic Value Intrinsic Value per share
Vidler Water 202,4 8,96 561,3 24,85
Nevada Land 107,8 4,77 240,39 10,64
corporate 190,6 8,44 190,6 8,44
Insurance Run Off 69,5 3,08 69,6 3,08
Total 570,4 25,25 1061,9 47,01
Source: company estimates , Think Equity      

An investment in Pico for me is primarily an asset revaluation story. If inflation will come to the United States (as I expect it will) Pico should be in  a great place as its "hard assets" should keep their value well.

 There is no point trying to do an analysis on price/earnings or EV/EBITDA multiples. The last quarter, for example, the company reported a loss on the bottom line. Going forward results will be lumpy as they realize their assets over the next 3-5 years. An investor in Pico needs to be comfortable with the value of water rights. Since there are no direct peers it is difficult to judge the value of the company. There have been some asset sales which give us some indication that fair value is much higher than book however.

From the company's annual report:

"Pico water and land operations comprise 60% of our net assets. These assets are carried on our books at
cost, which is considerably lower than realizable value. For example, the Fish Springs Ranch water credits are on
our books for $101 million. At the current price of $49,000 per acre-foot, which we are not inclined to reduce given
that long-term demand greatly exceeds supply, our 8,000 acre-feet of water credits are a real bargain for purchasers
of our stock. Water assets represent 43% of our net book value."

The second big value driver is the real estate. Again from the annual report:

Pico real estate operations comprise 17% of our net book value. The acreage owned by Nevada Land &
Resource Company is on our books for approximately $41 per acre. This includes the land, the water rights, and
mineral rights. The water rights alone could be worth more than the nearly $50 million we originally paid for all of
NLRC, which at the time had 1.3 million acres. Union Community Partners has acquired or controls $37 million in
real estate in the Fresno, California metropolitan area, at prices below replacement cost based on today's market
prices. These are properties located in markets where, over the past three years, the existing home inventory has
gone from 17 months to 5 months, and the affordability index has improved from 39% to 70%.

Insurance Operations
Pico insurance operations are managed so that fixed-income investments are equal to the net reserves,
which at this time are down to less than $12 million. Most of our reinsurance is with Gen Re, a subsidiary of
Berkshire Hathaway, Inc. The bulk of the equities portfolio of approximately $111 million is invested in value
stocks. The stocks are typically companies that have undervalued assets and modest debt, and, despite the recent
declines in their share prices, the underlying businesses are sound.
We have $42.4 million in debt, which is less than 10% of shareholders' equity. All of the debt is nonrecourse.

"Hard Asset Company"
Pico remains committed to being a hard asset company, particularly as it is highly likely that all of the funds
being pumped into the financial system and economies around the world will lead to high rates of inflation in the
medium term. In this environment, our hard assets of water resources, low-basis land in our real estate operations,
and the asset-rich stocks in our insurance company investment portfolios should provide a safe haven with above
average returns.

The management

Ronald Langley, Chairman of the Board of Directors Mr. Langley was born in Australia and moved to the United States in 1984. He was a securities analyst before he joined Industrial Equity Limited ("IEL") which had a strong belief in the merit of the "Graham and Dodd" approach to investing. In 1979 he assumed control of IEL's worldwide investments. From 1979 to 1989 book value per share grew at an approximately 36% annual comp ounded growth rate. Mr. Langley was the Chairman of Physicians Insurance Company and this is how he became connection with PICO. Mr. Langley owns 3,975,383 or 31.1% of the company.

John Hart, Chief Executive Officer Mr. Hart and Mr. Langley became associated as a result of Mr. Langley's IEP investments in North America in 1984 and 1985. Mr. Hart was employed at Detwiler, Riley & Company, a firm that provided investment-banking services to small and mid-cap companies. The firm was also a developer of software that identified potential acquisition candidates using Graham & Dodd techniques. Mr. Hart and Mr. Langley joined together to find companies to purchase that met their investment criteria. This led them to take control of Physicians Insurance Company in 1995. Mr. Hart owns 3,966,217 or 31.0% of the company.



no real catalysts. This is LT value story if you believe in asset value inherent in company. higher inflation might lead more investors to look for hard asset companies like Pico

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