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Buffett’s Investment In Sanborn Map Warren Buffett wrote at length about his investment in Sanborn Map, a publisher of maps of U.S. cities and towns, in the Buffett Partnership’s 1961 letter . Sanborn Map represented 25% and 35% of assets for the Buffett Partnership in 1958 and 1959 respectively. Sanborn Map was referred to as a company which “published minutely detailed maps of power lines, water mains, driveways, building engineering, roof composition, and emergency stairwells for all the cities of the United States, maps that were mainly bought by insurance companies,” in Alice Schroeder’s The Snowball. According to Roger Lowenstein’s book “Buffett: The Making of an American Capitalist,” Buffett earned “roughly a 50 percent profit” on the investment in Sanborn Map. Going back to the Buffett Partnership’s 1961 letter, Warren Buffett shared how he exited the investment at a profit by exercising influence by virtue of his significant shareholdings: Our holdings (including associates) were increased through open market purchases to about 24,000 shares and the total represented by the three groups increased to 46,000 shares. We hoped to separate the two businesses, realize the fair value of the investment portfolio and work to re-establish the earning power of the map business…There was considerable opposition on the Board to change of any type, particularly when initiated by an outsider, although management was in complete accord with our plan and a similar plan had been recommended by Booz, Allen & Hamilton (Management Experts). To avoid a proxy fight (which very probably would not have been forthcoming and which we would have been certain of winning) and to avoid time delay with a large portion of Sanborn’s money tied up in blue-chip stocks which I didn’t care for at current prices, a plan was evolved taking out all stockholders at fair value who wanted out. The SEC ruled favorably on the fairness of the plan. About 72% of the Sanborn stock, involving 50% of the 1,600 stockholders, was exchanged for portfolio securities at fair value. The map business was left with over $l,25 million in government and municipal bonds as a reserve fund, and a potential corporate capital gains tax of over $1 million was eliminated. The remaining stockholders were left with a slightly improved asset value, substantially higher earnings per share, and an increased dividend rate. Sanborn still exists today and has transformed itself into a provider of “a full suite of photogrammetric mapping and geographic information system (NYSE: GIS ) services,” according to its corporate website . Sanborn Map ‘s Deep Value And Wide Moat In many ways, Sanborn Map represented a classic deep value cigar-butt investment that Benjamin Graham would have been proud of, although the company had elements of a wide moat (albeit diminishing) investment as well. In 1958, when Buffett first initiated a position in Sanborn Map, the stock was trading for $45 per share, compared with the company’s investment portfolio of stocks and bonds valued at $65 per share. This implied that the market was valuing Sanborn Map’s map publishing business at -$20 per share, suggesting that investors vested at current prices were getting the map business for free. I have written extensively about deep value bargains net of cash and investments in my articles “How Benjamin Graham Will Possibly Invest In A World Without Net-Nets,” “Seeking Value In Sum-Of-The-Parts Discounts” and “A Case Study On Large-Cap Value Investing” published here , here and here . Sanborn Map was also a wide-moat company in various aspects. Firstly, Sanborn Map dominated its market, as evidenced by Buffett’s choice of words in his letter “For seventy-five years the business operated in a more or less monopolistic manner.” Secondly, Sanborn Map enjoyed a high degree of recurring revenues. Maps required annual revisions (via pasteovers), for which Sanborn Map will charge its customer around $100 every year. Thirdly, customer demand was fairly predictable (insurance companies needed maps to assess risk and underwrite policies) and Sanborn Map did not need to invest heavily in marketing to retain its customers. Sanborn Map’s moat eventually narrowed as its key clients, the insurance companies merged, which meant less business and more powerful customers. Furthermore, “a competitive method of under-writing known as “carding” made inroads on Sanborn’s business and after-tax profits of the map business fell from an average annual level of over $500,000 in the late 1930’s to under $100,000 in 1958 and 1959″ according to Buffett. Asia’s Sanborn Map Japan-listed OYO Corporation (9755 JP) is potentially Asia’s Sanborn Map. OYO Corporation call itself the “Doctor to the Earth” and its corporate profile on the Japan Infrastructure Development Institute website reads as follows: OYO Corporation was founded in 1957 as a general consultant firm specializing in study of the earth by Dr. Fukuda and Dr. Suyama. OYO brings together geology, geophysics and geotechnical engineering to provide a wide range of services in the four fields of construction, resources, disaster prevention and environment. In addition to these technical services, OYO is continually expanding its development of measuring instruments based on our own abundant experience in the field.To date OYO has grown up to the largest specialist organization in Japan in geotechnical field. OYO has about 1,100 staffs, more than two-thirds of them are university graduates in engineering and scientific fields. Besides some 60 numbers of domestic branch offices, we have overseas branches and subsidiary companies in U.S.A., U.K.,and J.V. in France. OYO has devoted itself to research and development in an effort toward “The Creation of Geoengineering.” Our greatest desire is to apply our achievements and to provide services of higher quality to our clients and customers throughout the world. OYO operates in three key business segments: Engineering, Consultation and Instruments. The Engineering business provides ground structure information for the major motorway constructions in Japan; assists with post-disaster management by conducting investigations to recommend relevant repair work; conducts air, land and sea-born investigations for natural resource explorations; and does site investigation for pollution remediation projects. OYO’s Consultation segment involves itself in the site assessment and determination process of nearly all of Japan’s power plants; provides earthquake damage estimation to city planners; and conducts geotechnical investigations and subsidence forecasts for airports built on water. Its Instruments business develops measuring & monitoring instruments used for a wide range of purposes including monitoring the condition and movement of polluted underground water, seismographs for exploration of natural resources under the sea bottom, and geotechnical investigations from: shallow soft soil to deep hard rock structures on the ground and in the sea. OYO’s net cash and short-term investments of JPY 24.0 billion as of December 2015 currently represents approximately 77% of OYO’s current market capitalization, which values the company’s operating business at a mere 3 times trailing EV/EBIT. While OYO is not exactly as great a bargain as Sanborn Map, the stock is still the cheapest of listed companies providing surveying and mapping services. As a bonus for my subscribers of my premium research service , they will get access to: 1) a list of publicly-traded companies providing surveying and mapping services; and 2) a list of stocks with short-term investments exceeding their market capitalizations. Asia/U.S. Deep-Value Wide-Moat Stocks Premium Research Subscribers to my Asia/U.S. Deep-Value Wide-Moat Stocks exclusive research service get full access to the list of deep-value & wide moat investment candidates and value traps, including “Magic Formula” stocks, wide moat compounders, hidden champions, high quality businesses, net-nets, net cash stocks, low P/B stocks and sum-of-the-parts discounts. The potential investment candidates I profiled for my subscribers in May 2016 include: (1) a U.S.-listed market leader in a niche consumer lifestyle space which is trading at 0.80 times P/NCAV and 0.70 times P/B, but remains debt-free and profitable; (2) a U.S.-listed Net Operating Losses-rich deep value play valued by the market at 2.6 times EV/EBITDA net of the present value of its NOLs; (3) an Asian-listed manufacturer of wireless communication products which is the market leader in its home market and the first to export such products to the U.S.; it is a net-net trading at 0.75 times P/NCAV with net cash equivalent to its market capitalization; (4) a U.S.-listed Magic Formula stock trading at 3 times trailing EV/EBIT and Acquirer’s Multiple, sporting a 10% dividend yield net of withholding tax; (5) a U.S.-listed Munger Cannibal trading at 7 times trailing EV/EBIT and Acquirer’s Multiple; (6) an Asian-listed company which is a global leader in a certain medical device niche trading at 3.5 times trailing EV/EBIT and 3.5 times Acquirer’s Multiple, versus a trailing ROIC of 27%. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Scalper1 News
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