Baby Berkshire: Bonds, Billboards, Broadband: Boston Omaha Corporation $BOC

Sometimes when I am turning over rocks looking for undervalued small cap opportunities, I find things that are just fun. Not because they are the cheapest company out there, but because management is dancing to the beat of their own drum, without regard for what anybody else is doing. Thank you to

Sophon Capital Research

for this idea. Boston Omaha Corporation (BOC) is a holding company made up of bonds, billboards, and broadband.

Why exactly bonds, billboards, and broadband? Because they are unloved income streams. How unloved are they? Take a look at Boston Omaha’s stock price against their revenues:

BOC stock price:

BOC Revenue:

The story is even more clear when you look at the price to sales ratio and the revenue per share:

“Something that can’t go on forever, will stop.” - Herbert Stein

At some point, Boston Omaha can’t keep on increasing revenue per share and have the share price fall. It might still be early today, but then again we are entering into a global interest rate cutting cycle, and billboards and broadband are unlikely to be affected by tariffs.

Boston Omaha is called one of the Baby Berkshires because it did previously have a co-CEO, Alex Buffett Rozek, great nephew of Warren Buffett. Alex departed BOC last year, allegedly because of a disagreement over strategy. Rumors imply that Alex wanted faster growth through acquisitions, while formerly co-CEO, now CEO Adam Peterson, with 23% ownership, wanted to focus on the business that BOC already has, and enter the predictable steady compounding phase. This interpretation is unverified, so take it with a grain of salt. If true, the risk of BOC making a bad acquisition and disrupting their compounding has diminished somewhat.

And the management team is properly incentivized, they are smoking their own brand, and buying stock in the open market as often as they are able. Clearly management believes in the strategy of deploying capital to bonds, billboards, and broadband, targeting a 25% IRR and a 5% - 7% organic revenue growth rate.

Before I dig deeper into the core businesses of bonds, billboards, and broadband, Boston Omaha invested $100 million of their limited capital into the SPAC offering of Sky Harbour Group (SKYH), a company which is building out airplane hangers for private jets. SKYH came across my desk sometime last year, but I was relatively unimpressed at the valuation. When BOC invested in it through a private placement, however, it was significantly cheaper. For $100 million, BOC acquired somewhere around 12.6 million shares and 8.5 million warrants with a strike price of $11.50 and an expiration of January 2027. BOC has been selling a few SKYH shares here and there, for prices somewhere around $11. If I attribute the investment entirely to the shares and assign no cost basis to the warrants, the purchase price was around $7.93. SKYH sits at $10.65 as of the market close yesterday, and it traded as high as $13.70 in March. Due to the relatively large weight of the Sky Harbour investment as a percentage of Boston Omaha’s market capitalization, it really demands special attention.

Boston Omaha has a current market capitalization of $412 million. At current market prices, the remaining 11.6 million shares of SKYH are worth $123 million. SKYH has options that expire in January of 2027, so the current market value of the warrants can be estimated to be around $15 million. This means that at today’s prices, the bonds, billboards, and broadband businesses of Boston Omaha can be purchased for the remaining $274 million. Of course, if the stock price of SKYH were to fall, that would significantly impact the value of BOC. And in the interim period, the mark to market adjustments on the value of those securities is wrecking the GAAP net income calculations.

At the end of 2024, BOC estimated the values of their core business assets across different segments as worth $418 million.

Billboards:

Boston Omaha entered the billboard business in 2018, and since that time have achieved a 22% internal rate of return on their acquisitions. The billboard business is interesting in the way that it has rapidly accelerated depreciation, which is about to double next year under Trump’s new even more rapidly accelerated depreciation. While billboard net income is only $6.9 million in 2024, free cash flow is another $10 million higher. Management has temporarily stopped investing in new acquisitions in this area because they believe the returns are even higher in broadband at the moment. The decline in asset value from 2023 to 2024 comes from management choosing to value it at 9x EBITDA instead of 10x EBITDA as they had done before. This choice was made due to softness in the advertising market, but that softness hasn’t hurt billboard revenue beyond keeping things flat instead of the 5%-7% growth that Boston Omaha targets.

Bonds:

Boston Omaha’s General Indemnity Group writes surety bonds, and similar to their other business segments, it is tasked with organic growth. The loss in 2022 was caused by construction defaults from Jerome Powell’s interest rate spike. Given that interest rates were hiked faster and by a greater relative degree than at any time in history, I would say the surety business performed well. While aggressive growth did require Boston Omaha to put more capital into the business, internal rates of return are estimated to be just barely above 20%.

Broadband:

Boston Omaha has an interesting approach to broadband. BOC is focusing on installing broadband fiber in newly constructed residential developments. This requires a significant upfront cost, and takes many years before the developer sells out the neighborhood, but comes with a ten year contract through the HOA, with another five to ten year option at BOC’s discretion. This is currently the preferred business segment for CEO Adam Peterson to deploy new capital, which must imply he believes it will generate a greater than 22% return, the average from the billboard business. But it is slow to start as real estate developers take years to sell out their divisions. Because Boston Omaha focuses on rural areas, residents have few alternatives, so it is management’s belief that over time, a significant number of homes that have access to the fiber (passings) will eventually subscribe.

Of course the big threat to this business model is Elon Musk’s Starlink, which currently is about twice as expensive as broadband, but costs could come down as he progresses with his larger Starship craft. Current estimates place the Starlink internet service cost reduction to be on par with broadband by 2030 or sooner. At that time, it is much less certain that houses with access to cable would be eventual customers.

In theory, autonomous cars would pose a threat to the advertising value of billboards, but with the average age of cars at 13 years, for every new car sold there is a 26-year old car on the road. Even if all cars sold today were full-self driving capable, billboards would retain advertising value for a decade at least. If I could get Adam Peterson on the phone, I would drill him with a few questions about his attitudes toward competition with Starlink. But then again, the 10 year HOA contract does offset some of that risk.

At current valuations, Boston Omaha Corp seems a bit expensive for a value investor. Excluding the value of Sky Harbour, I put a value of $274 million out of BOC’s $412 market capitalization on their businesses. For that $274 million, you get $111.5 million of revenue in the last twelve months, and a scant $760,000 of GAAP net income. But you do get growth, revenues have been compounding at a 27% annual rate, up from $20 million in 2018 to $108 million in 2024. There have also been a tiny bit of share buybacks along the way, not enough to make a difference, but enough to tell you what the future payout policy will be.

At the current price, Boston Omaha is trading right around 10x adjusted EBITDA, which is fair value for comparable surety, billboard, or broadband companies. And that is assuming that BOC will be able to exit Sky Harbour at a decent valuation. With the market getting frothy and an interest rate cutting cycle getting started, odds are very good that BOC will exit SKYH at a very good price, but the risk remains that they don’t.

I find Boston Omaha to be a very interesting company, and I respect everyone in the capital markets dancing to the beat of their own drum. It has a similar market capitalization to Murray Stahl’s FRMO Corporation (FRMO). For the same price, which would I rather own? As a value degen, I am attracted to BOC trading at about 0.75x their own estimated tangible book as compared to FRMO’s 2.0x by the same metric. But I wouldn’t fault anyone for choosing to go with Murray, or even hedging their bets and choosing both.

It’s hard to estimate a price target for BOC without doing a separate deep dive on Sky Harbour, or knowing how management plans to spend the money they get from liquidating their position. At the current rate they are selling, BOC will exit SKYH in about eleven years, but I suspect that if Adam Peterson ever feels that SKYH is overvalued, he might just accelerate his exit. If Boston Omaha maintains their 27% revenue growth over the next two years, I find it likely that they will trade a price to sales ratio of 3.0x. That would imply about a 68% upside as the share price climbs from $13.10 to $22.13.

Boston Omaha Corp (BOC) $13.10: $22.13 by the end of 2027