Bexil Corporation (BXL)

April 9, 2007

Everyone knows Benjamin Graham and his Net Current Asset Value (NCAV) model, which states, in part, that one of his criteria to buy is that the market captalization must be less than 2/3rds of the Current Assets less total liabilities.

Now these were fairly easy to find in his day, due to market inefficiency and poor disclosure by publicly traded companies, but they are rare now. When we find one, it stands out. I found a company that is close to this measure, trading at .76 of its Net Current Asset Value.

My calculation


Current Assets $38,071,710
Total Liabilities $206,829

Net Current Asset Value $37,864,881
0.76 $28,777,310

Market Cap $28,700,000


The company web site is here:

http://www.bexil.com/

Now before you start salivating at the prospect of buying a dollars worth of assets at 76 cents on the dollar, read on.

The Good

1) Bexil has $38 million in cash sitting on its balance sheet. Where did this cash come from? Last year it sold its 50% interest in an insurance services company, and paid out a dividend to shareholders for a fraction of that sale.

2) Management seems intent on creating value. They actually have a web site, which is not required so this I view as a positive. Thomas B. Winmill, the President of Bexil, states in his letter posted on the web site:

"Our objective is simple, straightforward, and sharply focused: to increase book value per share over time. We believe that long term stockholders will benefit from a rising book value as market recognition builds and investors come to appreciate Bexil’s intrinsic value as well."

Could this be Berkshire, vintage the 1970's?

The President even has his personal e-mail on the site. Does he read them? We will find out because I will send him an e-mail later today.

3) The company has invested the cash wisely in the interim, it has virtually all of it in a U.S. Treasury Note.

The Bad

1) The company is taking its sweet time looking for an operating business to buy. They sold the 50% stake in the insurance services company last May. The criteria they are looking for are (from the web site)

*A proven track record with demonstrated earning power.

*Sales between $10 million and $50 million.

*A seasoned business with solid customer relations.

*Good return (at least 15%) on equity, little or no debt.

*Solid management must remain. Audited financials required.

*Particularly interested in a “spin-off” from a larger company.

Mr Winmill, in the last year, there have been something like $500 billion in private equity purchases. Is it really that hard to find a business to buy?

3) The company has a shareholder rights plan that would activate if an entity owns more than 10% of the company stock or makes an offer for the company. This plan is almost a waste of time, because more than 50% of the stock is controlled by the Winmill Family or entities that they control.

4) Bexil is nosing around looking for Hospitals to buy in Mississippi. They formed a subsidiary to work on locating assets here. I'm not sure that this is the best business to own to grow book value over time, but I will reserve judgment on that until later.

Later this week I will post on the parent company of Bexil, another intriguing play that is not for the feint of heart.

Central Securities Corporation (CET)  

April 9, 2007

Central Securities Corporation is a closed end fund that trades on the AMEX under the symbol CET. The web site is here at:

http://www.centralsecurities.com/

CET trades at a 12% discount to net asset value, which is not a surprise since many closed end funds trade at a discount to its NAV. This has been the subject of many academic papers and discussions and is not the subject of this article so I won’t dwell on it. This discount has been as wide as 22% back in late 1999, and has averaged about 9% over the least 12 years. It last traded at a premium in November 1997, when it traded at a 9.85% premium.

Thirty-three percent of the shares are held by an entity called CA Johnson End, of which I can find absolutely nothing, while Wilmot H. Kidd holds 11% of the shares. He is the President and Portfolio Manager of CET. The company puts out an interesting annual report which I would recommend reading. It starts out with quotes by market pundits, most of which are contrarian and go against the conventional wisdom.

On page four of this year’s report are the return data for the stock indicating that CET has beaten the S & P 500 in the 1, 3, 5, 10 and 20 year periods ending 12/29/2006. This is both the market return and the NAV return. This, of course, is extraordinary and certainly bears further investigation. CET pays out a dividend twice a year, one is cash and the second the holder has a choice of taking it in cash or stock. The company also buys back stock to offset this share reinvestment.

One caveat is that CET has 21% of its assets invested in the shares of The Plymouth Rock Company, Inc., a private Massachusetts based auto insurer. These shares are restricted as well. CET acquired the stock in 1983 at a cost of $2.2 million and they are now valued at $133.0 million. Someone please calculate this return for me.  

Pittsburgh and Western Railroad (PW)

March 20, 2007

Every now and then when doing research you come across an unusual stock that is completely unknown. The stock that fits the bill today is called Pittsburgh & West Virginia Railroad. Pittsburgh & West Virginia Railroad is a $ 14 million market cap company that trades on the curb under the symbol PW. Now before I tell you about it, just because I mention a stock as Stock of the Month does not mean I am recommending that it be bought. It is more something that caught my eye, a relief from the mediocrity of relative performance induced boredom where everyone owns and buys and talks about the same stocks. PW is essentially a captive company associated with Norfolk Southern Corporation (NSC). PW owns a 112 mile track that runs through Pennsylvania, West Virginia and Ohio, that it leases to NSC under a 99 year lease that was signed in 1964. This lease is renewable for a unlimited number of 99 year periods. NSC pays PW annual rent of $915,000 essentially in perpetuity. Please note there is no escalation clause in the lease. They paid $915,000 in 1964 and they paid $915,000 in 2006 and they will pay $915,000 in 2064!!!

The company has very little in expenses as you can imagine, and it pays out a steady dividend that has varied from $0.12 - 0.14 per quarter for as long as I can get data (back to 1980 on Bloomberg.) The yield is nearly 6%.

So of course the first thing that comes to mind is that this stock is a purchasing power death spiral as eventually your dividend will be eaten up by inflation and even get to the point where there will be nothing to payout. After all, how much will it cost to rent an office and buy supplies in 2064? Maybe more than $915,000 a year?

However if you look at the performance of this stock, including reinvesting dividends, which I don't know if the company actually has a dividend reinvestment plan, it has returned an total return of 128.50% since 2/28/97 (through the end of february 2007.) This comes to an annual return of 8.61%, beating the S & P 500 return in the same period of 7.62%.

If anyone has any experience with this stock or comments, feel free to contact me.