Investment Idea: WWVYE

[wildcat]

Warwick Valley Telecom (hold on keep reading)

OK we all know the landline telecom business is going to decline and be flat at best in the future. However, if we can get through that we might be able to see a little more value to the company than what the title says. WWVYE is really a conglomerate with a very valuable 7.5% interest in an LP with Verizon. The two formed a wireless LP (from website):

The Company owns a 7.5% limited partnership interest in the Orange
County - Poughkeepsie Limited Partnership ("O-P"). Verizon Wireless of the East, L.P. ("Verizon") is the general partner and the majority owner with an 85% interest. O-P provides wholesale cellular telephone service throughout the Orange County-Poughkeepsie Metropolitan Service Area. Ongoing cash distributions are made according to the needs of the business as determined by Verizon. Cash distributions from O-P are used to fund expenditures in the Company's business segments as well as to pay portions of the dividend on Common Shares to our shareholders.

I feel like the dividends will grow continue to grow at a robust rate based on the growth of the LP's earnings which are passed through as dividends (below from the 10-Q) The LP is incredibly profitable and helps keep the company in a good financial position.

The partnership's earnings increased 27% over the comparable period last year. Continuing strong O-P call volume remains the primary factor behind the increase.

WWVYE has stakes in other businesses and some are beginning to improve and its other services should offset the decline in landline revenues. I think the sum of parts is greater than what the business is being valued at today, especially when dividends are included in the model. I did a few DCF models and I think the company is worth at least $28-29 based on their ability to increase dividends at a healthy clip. Bonus situation could arise if management decided to divide the business or separate the LP from the company. Patience is virtue with this one but you get a nice dividend while you wait. I think Mgt will act eventually, i.e. split the companies, but they have been slow to do much other than increase the dividends.

 

[brewer12345]

I'd want to know an awful lot about the partnership agreement before I was ready to jump in the pool. A GP that owns 85% of the LP interest as well has a lot of effective control over the thing.

 

[wildcat]

Brewer -
From what I understand Verizon is the GP but also purchases most of wholesale minutes from the partnership, i.e. sounds kind of like owner and customer. Would this still worry you?

 

[wildcat]

Sorry for delay...had to spend the weekend in Alabama

 

[laurence]

Youch, you defended the cornhole and aren't married to a cousin now, right?

 

[brewer12345]

Hmmm, I guess the problem here is that VZ seems to hold all the cards. Do they have some sort of embedded right to but out the 7.5% interest at a (low) predetermined price?

 

[wildcat]

I'll check into that one and if so it would surely raise a red flag.

Artist formerly known as Laurencewill -

My favorite comment made by one of the locals -
"I'm not dumb just ass backwards"

 

[cute fuzzy bunny]

Isnt that "Bass ackwards"...?

 

[wildcat]

Hmmm less exciting now that it is closing in on $25

 

[wildcat]

OK just read in Barron's that Santa Monica Partners will push to have a vote on putting the company up for sale at the end of this year. Shareholders will get a say or at least it looks that way. The group owns close to 3% of the outstanding shares (not much but a majority owner nonethless) and they have been pushing for the company to do something. This could be it. Either way I see it as a step in the right direction. The stock made a jump from $21-22 when I first mentioned it to $24-25. I still think it is worth more but would like to see it pull back. Just an update.