Description
Warwick Valley Telephone Company is an independent telephone company with access lines in New York State and in New Jersey. The Company manages its operations as two business segments, telephone service (including local, long distance and cellular) and internet service.
WARWICK VALLEY TELEPONE CO (WWVY) owns7.5% of what is "arguably the fastest growing, most profitable (just look at Pre-tax P M of 87 and ROE in which the R is on an unleveraged debt-free, over-capitalized E and fast approaching 300% percent), financially strongest (just look at E/A ratioof98%), in the world!". It is called the Orange County/Poughkeepsie Cellular Partnership (OCP)
In 2003 OCP had Net Income of $121.6 million and revenue of
$144.6 million. In the ten years 1993-2003, OCP Net Income
recorded a CAGR of 43.6%, and in 2003 achieved an incredible 84%
profit margin and a ROE of 215%. The ROE is extraordinary
because the balance sheet was vastly over-capitalized. Partners'
capital of $49.7 million was 98.6% of total assets of $50.4
million. EBITDA in 2003 was $125 million.
In 2004 first nine months the OCP P L showed:
2004 2003
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Net sales $ 122,486 $ 107,617
Cellular service cost 11,697 13,288
Operating expenses 5,610 4,647
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Net operating income 105,179 89,682
Other income 717 1,145
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Net income $ 105,896 $ 90,827
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Thus OCP is on track to have earned somew 142 mil last year and WWVY's
7.5% should approximate mil a 10.6 mil.
WWVY should spin of its RLEC business, and leave WWVY as an Investment Company (IC) and register as such. The cash received annually has always been all or most of or even more than the net earnings as depreciation always covers CAPEX.
Separated and paying out at least 90% of the cash received from this ONE passive investment (WWVY has several other small investments) should enable WWVY to trade on a yield basis say between 5% and 10% which would capitalize this entity at 10 - 20 times or between 106 mil and 212 mil. Of course it would be worth more based on future projections of net. WWVY has a present enterprise value of 124.5 mil. The rlec is in our estimation worth anywhere between 35 and 56 mil. based on multiple of 5 -8 times latest 12 month ebitda of 7 mil.
There is little downside and considerable upside. Assume then worst that OCP no longer grows and the rlec is worse than stagnant and risk is the company shrinks down to its very successful passive investment portfolio.
For separation to take place the shareholder constituency must change and it is noteworthy that it has been doing so in past year as institutional holders with activist leanings such as Steel Partners, Bedford Falls Partners and others such as John Levin (BKF) and more have been building positions.
Clearly the OCP business is unique. It is a one of a kind entity.
And so too must the thinking be. The BOD is headed literally by a farmer and the management is rural, small thinking, introverted and numb to shareholders interests, but DOES NOT OWN more than several percent of outstanding shares.
Time is on the side of activist intervention in our view.
Also Verzon the 85% general partner would love to purchase the 7.5% interests and FAIRPOINT COMMUNICATIONS (FRP) the other limited partner is newly public and a likely willing seller. Pressure may be on WWVY if not by shareholders by VZ.
Catalyst
THE SEPARATION OF RLEC FROM INVESTMENTS by Corporate activism.
The name of this beauty is Orange County/Poukeepsie (OC/P)