Maxxam Inc. MXM
February 22, 2004 - 1:09pm EST by
spence774
2004 2005
Price: 24.20 EPS
Shares Out. (in M): 0 P/E
Market Cap (in M): 166 P/FCF
Net Debt (in M): 0 EBIT 0 0
TEV: 0 TEV/EBIT

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Description

Maxxam Inc. is a deeply undervalued, asset rich holding company that we originally posted last year at $8.20, and was first posted on VIC in 2002 by Alli718. At today’s price, the stock is still very cheap and safe.

Being that we posted this last year, and had a good Q&A string, this post will recap the idea and touch on the various issues that one should be aware of before investing in MXM.

Valuation:

TSO: 6,861,606 (down from 7.2 mm last year)

Share Price: $24.20

MVE: $166 mm

Unrestricted Cash: $145 mm

Real Estate Net Book Value: $98.5 mm

Forest assets: $0

Racing: $0

Per Share Asset Value: $35.50

Free call options:

1. The real estate may be worth more than net book value.

2. The timber grows in value every year, and if timber prices go up, there is a lot of per share value leverage once the asset value passes the debt level.

3. The Texas horse tracks are cash flow positive and could become more valuable if casinos are allowed at the tracks.

4. The company may get reimbursed for some of its legal costs associated with defending itself against the claim by the OTS (explained more below).

Management: Charles Hurwitz stills controls the company. He is a very controversial figure, especially the environmental circles.

Kaiser Aluminum: Kaiser is a deconsolidated, bankrupt subsidiary. It does not have obligations that are recourse to the parent.

FDIC and OTS: The FDIC has a pending civil action against MXM. The civil action was originally related to a claim by the Office of Thrift Supervision (OTS) against MXM stemming from the failure of a Savings and Loan named United Savings Association of Texas. MXM settled the case with the OTS last year and we do not believe that the FDIC action poses a material threat to the company.

Catalyst

1. timber prices rising
2. casinos allowed at Texas race tracks
3. the company continuing to buy back shares
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    Description

    Maxxam Inc. is a deeply undervalued, asset rich holding company that we originally posted last year at $8.20, and was first posted on VIC in 2002 by Alli718. At today’s price, the stock is still very cheap and safe.

    Being that we posted this last year, and had a good Q&A string, this post will recap the idea and touch on the various issues that one should be aware of before investing in MXM.

    Valuation:

    TSO: 6,861,606 (down from 7.2 mm last year)

    Share Price: $24.20

    MVE: $166 mm

    Unrestricted Cash: $145 mm

    Real Estate Net Book Value: $98.5 mm

    Forest assets: $0

    Racing: $0

    Per Share Asset Value: $35.50

    Free call options:

    1. The real estate may be worth more than net book value.

    2. The timber grows in value every year, and if timber prices go up, there is a lot of per share value leverage once the asset value passes the debt level.

    3. The Texas horse tracks are cash flow positive and could become more valuable if casinos are allowed at the tracks.

    4. The company may get reimbursed for some of its legal costs associated with defending itself against the claim by the OTS (explained more below).

    Management: Charles Hurwitz stills controls the company. He is a very controversial figure, especially the environmental circles.

    Kaiser Aluminum: Kaiser is a deconsolidated, bankrupt subsidiary. It does not have obligations that are recourse to the parent.

    FDIC and OTS: The FDIC has a pending civil action against MXM. The civil action was originally related to a claim by the Office of Thrift Supervision (OTS) against MXM stemming from the failure of a Savings and Loan named United Savings Association of Texas. MXM settled the case with the OTS last year and we do not believe that the FDIC action poses a material threat to the company.

    Catalyst

    1. timber prices rising
    2. casinos allowed at Texas race tracks
    3. the company continuing to buy back shares

    Messages


    Subjectshareholder base
    Entry02/23/2004 08:57 AM
    Memberspence774
    One additional point I want to make is that the shareholder base is now more stable than the last time we posted this idea. Fidelity has sold their position, and two hedge funds run by great investors have taken large positions: Scion Capital run by Dr. Michael Burry, and Luxor Capital run by Christian Leone.

    SubjectWSJ: Lumber Prices Surge
    Entry02/26/2004 10:21 AM
    Memberspence774

    By JIM CARLTON
    Staff Reporter of THE WALL STREET JOURNAL


    Lumber prices are going through the roof again.

    Prices have spiked the past few weeks amid unusually tight wood supplies and resurging housing demand. The trend could add to the already torrid run-up in the price of homes in many parts of the country -- but not enough, analysts say, to damp the nation's white-hot housing market.

    Domestic lumber producers are in an enviable spot, analysts say, of having numerous orders to fill because of a triple whammy that has crimped supplies: Foreign imports have cooled due to the weakened dollar, log supplies are unusually low because of all the Western forest fires last year, and railroads are operating slower than normal due to a strike in Canada and other factors.

    "If you are a seller of lumber, it is a very, very busy business now," said Mark Donovan, a marketing vice president for Forest City Trading Group Inc., a commodities trader in Portland, Ore.

    The composite price for framing lumber in the U.S. jumped to $384 per thousand board feet as of last Friday, from $327 in December, an increase of 17%, according to surveys by Random Lengths Publications Inc., a market-tracking firm in Eugene, Ore. Many traders expect the price to quickly break through the five-year peak of $386 reached in September, after prices began recovering last year. The composite price is a weighted average of 15 different lumber products.

    The imbalance between materials supply and housing demand is driving up prices even faster for plywood and engineered wood panels. According to Random Lengths, the composite price of structural panels -- the weighted average of 11 key products -- has jumped 60% to an all-time high of $571 per thousand square feet from $356 in December. Like framing lumber, the prices for panels, which are used to make walls and rooftops, had declined through much of the fall due to a seasonal housing slowdown.

    Before that, lumber and panels pricing had shot up, ending a three-year slump in the wood-products industry. That downturn was caused by, among other things, an excess of wood products brought on by increased foreign imports drawn by the then-strong dollar. Composite lumber prices peaked at $408 per thousand board feet in 1999, then fell back to $304 in 2002, according to Random Lengths. The lumber industry was hit so hard that in the Southeast, for instance, about 50 of the region's 417 sawmills have had to close over the past five years, according to Sara Baldwin, an editor for Timber Mart-South, a price report at the University of Georgia.

    The turnaround in pricing that began last year is benefiting the mills that were able to survive. "I wouldn't say they are euphoric yet, but they are certainly relieved by the higher prices," Ms. Baldwin said.

    After a holiday lull, industry executives say housing activity resumed in full stride, with higher-than-normal sales in places such as Phoenix and Las Vegas offsetting most of the snow-related slowdowns in the East.

    The price increases could put the squeeze on smaller builders, but they aren't likely to have much effect on the operations of big builders. That's because many buy lumber and other wood products at volume discounts, and lock in their prices as much as a year in advance. For instance, officials at Toll Brothers Inc., a builder based in the Philadelphia suburb of Huntingdon Valley, say they signed a 12-month contract for lumber in July, when composite lumber prices were at $302. "We all hate paying more, but this won't impact our earnings," said Robert Toll, Toll's chairman and chief executive officer.

    Still, the higher prices could eventually be passed on to consumers if the trend continues for very long. Officials at Pulte Homes Inc., for example, said they might add $1,000 to $1,500 to the price of their homes; lumber and paneling comprises about one-fifth the cost of construction. "That's maybe a half percent increase in our prices, so it's not a gigantic item," said Richard Dugas Jr., president and CEO of Pulte, based in Bloomfield Hills, Mich.

    But officials at Toll Brothers say their home prices have already gone up so much because of the demand around the country that the lumber increases can be easily absorbed into the total home cost. Toll's single-family homes in Pennsylvania, for instance, have shot up more than 50% to an average price of $589,000 from $383,000 in 1998. Company executives attribute the price increases to the same combination of low interest rates and limited home supply that has fueled the nationwide housing boom.


    SubjectKaiser
    Entry02/29/2004 10:33 PM
    Membertigger388
    Is there any valaue in the Kaiser sub given the rise in alumina prices?

    SubjectKaiser
    Entry03/01/2004 01:50 PM
    Memberspence774
    There is a very small chance that MXM's equity in Kaiser is worth more than zero. It would be nice, but is not something that I am counting on given the fact that the sub debt trades at 15 right now.
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