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Betting on Farmland

NEW YORK ( TheStreet) -- As a value investor, I have long been enamored by companies that own real assets, land in particular. Small agriculture plays are particularly interesting, although you must be very patient with these; they can be volatile and take years to play out.

I believe that farmland itself is an asset class, and despite the run-up in land prices over the past several years, it is still a desirable asset that they aren't making any more of. Publicly traded agriculture companies are few and far between, but worth a look.

Florida-based Alico (ALCO) owns 130,800 acres, which is about 204 square miles, in six Florida counties. The company operates citrus groves, and it has more than 17,000 acres of land dedicated to growing Hamlin and Valencia oranges. This business represented 44% of 2012 revenue. Another 30,600 acres is used to grow sugarcane, and 67,400 acres is considered ranch land and conservation land, used for cattle production, sod and native plant sales.

With a market cap of $300 million, Alico has a fairly clean balance sheet. The company ended last quarter with about $7 million in cash, $6 million in long-term investments, and $36.5 million in debt. Earnings, however are not consistent, not unexpected for a company whose sales and profits are tied to weather conditions. Currently trading at 40 times trailing earnings, shares are up 33% over the past year. ALCO Chart ALCO data by YCharts

With an enterprise value (or "EV", which is calculated by adding a company's debt and market cap, and subtracting cash) of about $330 million, and 130,800 acres of land, Alico trades at $2,519 on an EV to acres basis, a homegrown calculation I sometimes use when evaluating companies that own substantial amounts of land. This calculation assumes that only the company's land has value, and doesn't consider the value of any other company assets, besides cash. Interestingly, Alico carries the land on its balance sheet at $81.8 million, or just $625 per acre, perhaps very low. ALCO Enterprise Value Chart ALCO Enterprise Value data by YCharts

For perspective, the company has engaged in some land transactions in the past year or so , purchasing 396 acres in Alachua County in Florida in June for $1.2 million, or $2,967 per acre. In September 2012, the Alico sold a conservation easement on 11,600 acres in Hendry County, Florida to the U.S. Department of Agriculture for $20.7 million, or $1,784 per acre. Alico, however, retained mineral and water rights on the property.
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