Business:

Tejon Ranch Co. (TRC: NYSE) is a diversified real estate development and agri-business company based in US. The major segments of the company operation involve commercial/industrial real estate development, resort /residential real estate development and farming.

Stock Info:

As of 12^th September 2012, the company’s shares traded at $29.30 with an average volume of approximately 52,000 shares over the last three months. During the past 1 year the stock has traded between  $22.8 to $31.64. Compared to other property management companies of similar size, the company has been trading at a significantly low P/E ratio as shown below (high p/e is mainly due to the abnormally lower net income recently):

Property Management Companies
Company	Symbol	Price($)	MarketCap(Mln)	P/E
Tejon Ranch Co.	TRC	30.2	606.75M	73.7
Hansteen Holdings ORD	HSTN.L	78.6	501.8M	3,740.5
Daejan Holdings plc	DJAN.L	2,904.0	473.21M	1,316.4
Grainger Plc	GRI.L	102.3	417.82M	17,050.0
Savills plc	SVS.L	409.0	507.97M	1,985.4
Source : Yahoo Finance

Financial Performance:

 

Top line Although the topline of the company decreased from $28.5 Million in 1HFY11 to $17.4 Million in 1HFY12 which represents a decline of 39%; however, a deeper look into the segmental revenue reveals that the revenues have mainly declined as a result of the decrease in income from resort/residential segment revenue. Revenues for commercial/industrial segment have increased significantly rising from 9.3 million in 1HFY11 to $12.3 million in 1HFY12 primarily due to increase of oil lease and royalty payments. Farming revenue also increased compared to 1HFY11 primarily due to increase in pistachio revenues related to the sale of 2011 crop pistachios during 2012 and also due to the positive price adjustment factor in pistachio prices.

 

Bottom line 

The Earnings per share (EPS) of the company declined from $0.41 in 1HFY11 to $0.02 in 2HFY12.  Apart from the decrease in revenue, another factor contributing to the decline in net income attributable to common shareholders was the increase in operating expense of  % driven by higher compensation costs which was mainly related to timing of staff hiring in early 2012 and the recognition of additional staff compensation costs. Therefore although the bottom line decreased significantly during 1HFY12 compared to 1HFY11, the situation is not all that gloomy..

 

Strong Financial Health:

As at 30^th June’ 2012, the total equity capital of the company was approximately $303 million with debt accounting for less than 1% of the company’s capital. This translates to a book value per share of 13.10. The company also has cash & cash equivalents of 74.78 million as at 30^th June’ 2012; which translates to a cash value of $3.73 per share.

 

Outlook:

The outlook for Tejon Ranch Co. looks strong and we think value investors should look into the stock further based on the following factors:

• One of the key planned residential resort development is no longer subject to legal challenge related environmental laws.
• Tejon Ranch Co. has entered into a letter of intent with The Rockfeller Group to partner in the development of The Outlets at Tejon Ranch, a premier outlet that is being planned for one of California’s biggest highways. Infrastructure work at the sight has already begun and the companies are targeting a spring 2014 opening date.
• The strong capital structure of the company provides a solid foundation for future growth and will help the company in achieving successful closure of its real estate projects which require a lengthy process to complete the entitlement and development phases before revenue can begin to be recognized.