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Hi, guys --

Back in February, 2015 Mr. Church sold his shell corporation to Alex Rozek and Adam Peterson for a nominal sum.Their “focused objective is [to grow] intrinsic value per share at an  attractive rate, while seeking to maintain an uncompromising financial position.”  It’s important to note that Mr.Rozek is Warren Buffett’s grand-nephew -- I was never any good at this genealogy, first-cousin-twice-removed stuff, but I think he’s Warren’s sister’s grandson, and thus not a direct descendant, and I’m not even sure why this is important to note, it just is.

Here’s a precis of how the capital accounts have evolved since then, derived from the form 10-Ks lawfully filed with the SEC, except for the last line which represents the 6 month results for 2018, and except for the very last entry where I took the liberty of annualizing the increase in the Accumulated Deficit:

(In 1,000s)

It’s interesting to note that losses to date are some 50% of initial capital, and knocking on the door of 10% capital raised through the end of 2017. Interesting, but not important; what’s important is what they’ve done with that net paid in capital! Here are some charts from their annual meeting that that show what they’ve done:

, leading to:

, which to me looks like “Underlevered billboard company with a few sidelines.”

And at this point, I’m going to stop being coy. Bluegrass wrote this up as a long at $14 in June 2017 and has obviously done well. Milehigh recommended shorting at $20/2x book, and proceeded to get his face ripped off. I’m short at $28/2x book and not in the least worried about getting my face ripped off because BOMN’s most recent acquisitions have moved the company from “blank check” to “operating”, and they’re focusing their investments in an area where cash returns are low and there are direct and very unfavorable comparables.

Lamar Advertising has a $7.5B market cap and trades for ~6x EV/sales. BOMN has been buying billboards for, you guessed it, 6x sales. Pro-forma for their most recent acquisitions, BOMN will be doing about $25MM in billboard revenues. Say that’s worth $150MM, throw in another $150MM for the cash and the sidelines and you’ve got $300MM vs. a current market cap of $630MM. I expect billboards to continue to be a capital allocation focus because:

1: Obviously they like the industry,

2: Having gotten this far in, it makes sense to try to increase scale, and

3: The CEO of the billboard sub is a respected industry veteran who is being compensated, among other ways, by getting 50 bps of BB acquisitions.

Timing of capital deployment is of course uncertain, and note that they have plenty of room to lever up, but I’m guessing that 75% or more of the current equity base winds up in billboards, which will make them a billboard company. No one in their right mind is going to own a billboard company at 12x sales when they could own industry leader Lamar at 6x sales instead.

At these prices, I’m not too worried about the sidelines. Whatever’s going on with the surety business, it doesn’t seem capable of absorbing capital at the moment. The other things are equity investments which don’t move the valuation needle if they work out but cause reputational damage if they fail.

In addition to the blue-sky possibilities, the other leg of the long case here has been the prospect of wealth creation over time due to superior capital allocation. That risk is mitigated by the returns on billboard investment being low, giving limited opportunities for capital recycling. This isn't a criticism of the industry or BOMN's investment in it, it's just that benefits of billboard ownership are well understood.

For extra fun, the recent acquisition spree actually decreases GAAP profitability.

I typed this out in Google Docs so hopefully the formatting works out this time, and am willing to get into more depth in the comments should there be interest.

Yours,

Bowd

(N.B., I'm not sure what the actual borrow cost is.)

Catalyst

They will soon be filing quarterlies with numbers that highlight the valuation discrepancy.