Patriot Transportation is a Forgotten Undervalued Spin-off

Patriot Transportation (PATI) is a top tier regional tank truck hauler servicing the southeastern United States. FRP Holdings spun-off Patriot Transportation during January 2015 and began trading under the symbol PATI. However, they began as a premier bulk tank carrier in 1962 under the name Florida Rock and Tank Lines. Florida Rock and Tank Lines continues its growth as an industry leader in the southeastern United States, transporting petroleum and other liquid and dry bulk commodities in tank trucks.

Patriot Transportation (PATI) operates under their one subsidiary, Florida Rock and Tank Line. They specialize in hauling petroleum (82% of revenue), dry bulk and other liquid commodities(18% of revenue).

The tank lines transportation business is highly fragmented. This attribute offers PATI exciting growth opportunities with its strong balance sheet, free cash flow, clean capital structure and committed bank financing to benefit from industry consolidation. Ranked #12 in US by revenue per the 2013 Bulk Transporter's Gross Revenue Report. Number one of the top 3 tank truck haulers in the markets they generate 66% of their revenues.
   Current Valuation:

Patriot Transportation is a value outlier based on asset reproduction and earnings power. They have 21 terminals, 9 satellite locations,488 Tractors and 563 Trailers located in Florida, Georgia, North Carolina, South Carolina, Alabama, and Tennessee. Terminals owned in Florida (Jacksonville, Panama City, Pensacola, Tampa, White Springs) Georgia (Albany, Augusta, Bainbridge, Columbus, Doraville, Macon) and Tennessee (Chattanooga, Knoxville). Additionally, the company owns 468 tractors and 561 tank trailers. During fiscal 2016, the Company purchased 78 new tractors and 24 trailers. Further, its current financial position reports 6.87M cash, 6.44M current account receivables, for a total current asset value of 17.95M. Gross PPE of 102.19M or net value of 41. 38M.The total equity value is 45.82M or $13.89 per share with no debt. 

Insider buying from original founders of Florida Rock / Patriot Transportation, John Baker. The Baker family owns 37% of PATI. Edward L. Baker 5.14%, John D. Baker (Chairman) 13.39%, Thompson S. Baker (President and CEO)5.69%, Edward L Baker (Chairman Emeritus) 1.227%.
John D. Baker (Chairman) purchased 10,000 shares during June 2017 for $179,662 or 17.97 per share. During 2016 John D Baker purchased 6,233 shares for $121,712 or 19.53 per share.

Value institutions holding shares at higher prices are Royce Associates, PVAM Perlus Microcap Fund, T. Rowe Price Associates, Hyman Charles D, Willis Investment Counsel, Rutabaga Capital, Cove Street, and Teton Advisors. 

Nine of their top 10 largest volume customers serviced over 10 consecutive years. During the past five years' annual revenues grew 54.60% with these loyal customers. This supported by consistent double digit return on capital, TTM ROIC is 12.17%. Trading near tangible book value recorded below fair market value, EV/EBIT = 7.18, and EV/revenue of .45.

Historical Value Improvements

The stock is down -18% over the past 52 weeks. Off its 52 high of $27.32 versus the $17.95 closing price on 07/14/17. Revenues decreased slightly year over year. But, profits reported with growing net cash, equity and reduction of liabilities and enterprise value to revenue and EBITDA.

Trucking Industry Comparisons (18 Companies)

I ran a screen for companies in the trucking industry and excluded OTC listed. My final but not perfect industry peer group is 18 companies. Many competitors are smaller private and not reviewed.

After doing the industry comparisons, Patriot Transportation is a strong value outlier with the these attributes. Ranked highest for financial strength, lowest for EV/EBITDA at 3. Percentage above historical low, P/Book, EV/Sales, EV/EBITDA ranked lowest. PATI has the smallest market capitalization, enterprise value, and short as a percentage of the float. The negative 18% stock return ranked 3rd lowest in the group.


Thinly traded with no Wall Street Coverage

Loss of major customers from under biding by a larger competitor or bankruptcy.

Lack of Wall Street Coverage.

A continued labor shortage of available qualified drivers.

The increasing costs of worker's health care, fuel prices, insurance, equipment, taxes, tolls and regulations.

Reduced demand for hauling petroleum products from overcapacity or industry / economic trends.

Liabilities from environmental costs related to the hazardous materials delivered.


Future acquisitions coupled with Wall Street coverage and continued profitable growth. 

Long: PATI


Fred said...

Hi John,

Thanks again for a great introduction to this stock. It's a bit frustrating to see it jumping up in the past days while I was on holiday.

PATI is indeed undervalued compared to it's peers and the stock market.
I'm trying to find the 'catch' usually linked to these kind of stocks (with or without good reason), but besides a declining net profit in the last quarter, I haven't found something yet. The Baker family clearly has an important influence, but nothing really worrisome.

On top of what you already mentioned, I also noticed the property sale which should generate some additional cash.
I'll continue my DD in the days to come, but it looks very promising.



ActOfWill said...

Hi John - thanks for this idea. We checked this against the released financials on the 26th of July 2017 an the LTM EBIT number has dropped materially to 3.3m Do you have any thoughts here? Thanks for sharing.

ActOfWill said...

Hi John - thanks for this idea. We checked this against the released financials on the 26th of July 2017 an the LTM EBIT number has dropped materially to 3.3m Do you have any thoughts here? Thanks for sharing.

ShadowStock said...

Not happy but not completely unexpected.

They did mention last quarter business lost in a competitive bid process and won't destroy margins to keep the revenue. Then, driver shortage, and it’s always a risk a company builds or merges with a company with their own privately fleet.

“We made significant progress on the sale of our Tampa terminal facility ($10M sales price) and are in the process of granting an extension to allow the developer the time it needs to get all plans and approvals finalized with the City of Tampa.”

10M is significant for 55M enterprise value company.
I still hold and like the stock.

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