Alico (ALCO) - Asset Play Unlocked in a Historic Divesture
After a century in business, Alico will sell its real estate, expecting proceeds that dwarf its current market valuation...
Summary:
Alico, Inc. is a Florida-based agribusiness company with a long history in citrus production, responsible for ~19% of Florida’s output. However, facing significant environmental challenges, the company has decided to liquidate its land holdings. It expects from $650mm to $750mm in PV of proceeds over the next years which is about 3x its current market cap.
It owns ~53.3k acres of land primarily used for orange tree groves across eight Central and South Florida counties. For a long time, these assets have formed the basis of many investors' investment theses. Recent appraisals with a ~33% higher valuation than previously estimated and the company's clear approach to asset sale, indicate that the upside potential may now be fully unlocked.
The local citrus industry has seen approximately a 50% decline in production over the last decade, which has also negatively impacted Alico's revenues and profitability. This decline can be attributed to devastating hurricanes, such as Ian and Milton, severe freezes, and an increase in citrus greening disease, pushing the industry to the brink.
In response, the company has implemented measures to improve efficiency, including increasing tree density and utilizing antibiotics to combat diseases. However, these efforts were insufficient to prevent a ~50% decrease in revenue over the last three years, and high volatility in margins.
Alico plans to gradually sell its land over the next six-plus years. It projects to receive $650mm to $750mm in PV of proceeds from land sales, resulting in an estimated equity value (after subtracting net debt) of $611mm. This translates to an intrinsic value per share of $80.03, implying a potential upside of ~155%.
Our valuation, based on the midpoint of the company's projected land sale proceeds, does not include the potential value of ~48.7k acres of oil, gas, and minerals rights. We are solely focusing on the company’s main assets.