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It may be time to start thinking about a liquidation analysis of Bonal, in case the older members of the
Hebel family decide to take their working capital out of the business and call it a day. The market
capitalization is currently $2.6 million, which is a two-thirds premium to book value. They have only
$20k of property, plant, and equipment but they do not own their building so that figure may actually
be realistic. (Note that their building lease expires in 2020: they will need to decide whether to renew
or liquidate the business.) If you take net current assets and discount the inventory value by 25%, you
get a conservative estimate for liquidation value: $1.4 million, or $0.80 cents a share; about half the
current price.

The Coal Creek Company

Coal Creek put out its 2018 annual report right after we published our March Issue. It is a favorite land
investment of some Oddballians, and there has been a precipitous decline in the share price this spring
to about $345, the same level at which it traded at in 2006 and 2007. You may recall that in 2017 the
company bought back 8,377 shares of its stock (which was 8% of the outstanding) at an average price
of $344 per share. With the higher share price that prevailed during most of 2018, they bought back no
stock but paid a larger dividend than in 2017. It would be interesting to know whether they are making
more repurchases now that the share price has fallen again.

Coal Creek goes in the category of Oddball that is profitable, trades for less than its liquidation value
(in this case, estimated based on the value per acre), and that hungrily buys back its stock. That puts it
in a class well above the stubbornly bad capital allocators like Bank of Utica, Hanover Foods, or Life
Insurance Company of Alabama. (Which are profitable and trade for less than liquidation value, but do
not buy back any stock.)

Still, there are capital allocation changes that we would probably make if we were running this
company. One thing we are never excited about investing in is an Oddball company's investment
securities portfolio, like Coal Creek's $3.4 million of common stock, $805k of mutual funds, and $2.2
million of exchange traded funds. (And consider us especially unexcited about investing in an opaque
securities portfolio.)

Coal Creek has a line of credit with a balance of $1.7 million at 3.77% (floating) plus $660k of
mortgage debt at 4%, totaling $2.4 million of debt. If the investments in the securities portfolio are
along the lines of a big-cap mix then this asset-liability pairing may be something of a negative
arbitrage, with the cost of the debt higher than the 2% dividend yield on the S&P 500. (It may be worth
investors keeping in mind that this portfolio of $6.4 million represents a substantial $66 per CCRK

In our opinion, a beautiful move for Coal Creek would be to dump the securities portfolio, which
would probably result in about $5.9 million in after-tax proceeds, pay off the $2.4 million in debt, and
split the rest between building up the currently low cash reserves, and stock repurchases.

Also, since we happen to think that U.S. timberland is systematically overpriced, we would not mind
seeing the company sell some timber land and buy back shares. Since each Coal Creek share stands for
about 0.75 acres of East Tennessee land, selling the land and then buying back shares (at an implied
price of $460 per acre) would function like Buffett's Rockwood & Co. cocoa bean trade.

Copyright Oddball Media, LLC 2019 ISSUE 25