By Nat Stewart of NAS Trading LLC
Dear CKX Lands’ Inc. Management and board of directors:
Over the years, you have done an admirable job as stewards of the CKX Lands Inc. (CKX) properties. I am impressed by the high level of stock ownership by the board of directors and by the meager salaries both executives and directors draw from the company. I was also impressed by the recent moves taken to improve corporate governance practices by removing potential conflicts of interest. All things considered, you have done a fine job, an admirable job, of leading CKX Lands, Inc [for more commodity news and analysis subscribe to our free newsletter].
Yet, at times “fine” is exactly that, and is not reflective of the full potential of a situation. A butterfly is “fine” in the cocoon, but a point is reached where it must break free and spread its wings. This, today, is the situation that CXK Lands, Inc. finds itself in.
- The growing mountain of cash on the balance sheet (more than $3 per share) has sat idle for far too long – It must be intelligently deployed or returned to shareholders!
- The CKX Lands executive team and board of directors reads like a “who’s who” of informed Louisiana-based natural resource investors and operators – Is this expertise being utilized to maximum potential?
- Prodigious free cash flow – Socking away cash earning 0% is wasted potential – find opportunities to deploy it – or return it!
- Massive land and royalty interests that are effectively a “hidden asset” on the GAAP-based balance sheet – Untapped assets can fund future investment, today!
Unleashing the potential of CXK Lands, INC – A step by step action plan:
The metamorphosis: Transform CKX Lands, Inc. from a “sleepy little micro-cap” to a true wealth compounding machine.
- Begin a massive campaign to identify high IRR, low risk investments. Urgency, not business as usual, is required! The full knowledge and expertise of the executive team and board of directors must be utilized. For example: The application of new technology to the Wilcox play should in itself provide a fertile field for profitable investment. Raw land and mineral interests should be considered, but so should all other opportunities that are within the company’s field of competence to analyze.
- A Rational IRR (Internal Rate of Return) framework must be used to analyze potential investments – Investors demand your most wealth creating ideas!
- Add a conservative amount of long-term leverage to the balance sheet – At today’s cyclically low interest rates, it makes sense to add leverage now in order to fund solid investment opportunities. As media tycoon John Malone once said, “Inflation lets you raise your rates and devalue your liabilities.” Financial management, conservatively applied, can build shareholder wealth!
- Utilize cash on hand, proceeds from borrowings, and free cash flow to fund the opportunities identified in step one – This one explains itself! Just maintain enough balance sheet cash to preserve a solid margin of safety.
- Rinse and repeat: The increased cash flow from successful investments must be redeployed into new investments – For this reason, the search for opportunities must be ever-present and ongoing! A new, more aggressive mode of operations is cried out for.
CKX lands, Inc. has the opportunity to become something special: A business enterprise dedicated, devoted, to the business of rational capital allocation. A low-risk land and energy small cap that focuses exclusively on compounding investor returns over time – not through speculative plays like all too many E&P companies, or through the “growth at any cost” philosophy that dilutes equity and rarely pays off for external shareholders, but rather through deep expertise in identifying opportunities and opportunistic, yet conservative financial management [see Commodity Stocks Ripe For Bargain Shoppers: APC, VLO].
As significant shareholders, you, the executive team and board of directors, should find the action plan to be in your own long-term interests. Such a plan, if executed diligently and prudently, contains within it the opportunity to multiply your CKX investment significantly over the coming years; this is a plan to massively increase the market capitalization of CKX Lands, Inc. over the long run. Far more importantly, it is a plan to compound value-per-share in a way that handsomely rewards all shareholders.
Clearly, at least one current board member sees substantial value in CKX Lands, Inc. common stock. Ottley Properties LLC, an entity controlled by new CKX Lands, Inc. Director Michael B. White, has been buying the CKX stock relentlessly for several years. Ottley Property LLC’s interest in CKX lands stood at 14.35% as of the last proxy statement (3/22/3013), up from the 11.52% recorded the prior year (Mr. White, perhaps you will be the catalyst for change that CKX Lands, Inc. needs?).
I have sent a copy of the book, “The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success” by William N. Thorndike to the corporate address listed in your last annual report. This is not a book of management guru platitudes that belongs in a dumpster, rather, it is the story of eight CEOs who achieved greatness through rational, disciplined capital allocation over time. These stories contain within them the blueprint, the potential, for what I believe CKX Lands, Inc. can become.
My hope is that this book will stimulate your creative thinking – to reset the framework from “what is” to “what is possible.” Oak trees, after all, start life as oak seeds.
Regards and best wishes,
Nat Stewart – NAS Trading LLC
Disclosure: The opinions expressed in this article are solely those of the author and are offered for informational purposes only. Neither Nat Stewart nor NAS Trading LLC are investment advisors and they do not offer investment advice. Nat Stewart, the author, holds a position in this security.