Avoca (AVOA) Reports Third Quarter Earnings; $1000 dividend in 2007?

Avoca Inc, the owner of 16000 acre Avoca Island off the coast of New Orleans, which generates the bulk of revenue from gas royalties, recently issued 3rd quarter financial statements. For most companies the act of doing this is both required and expected, but for Avoca, which delisted in 2004, there is no requirement. Still, the company continues to keep shareholders well informed.

For the 3rd quarter, revenues were $3.5 million, up sharply over last year's $1.3 million. However, $1.8 million of that represented proceeds from the settlement of a lawsuit. Net income was $2.3 million, or $291.32 per share up form last year's $835,000, or $103.65 per share. For the nine months ended 9/30/06, revenues were $9.95 million, (vs $3.7 million), and net income was $6.6 million, or $818.64 per share (vs $2.3 million, $291.05/shr).

Last year, Avoca paid a $400 dividend in January (declared in December). Since the company typically pays out most of its earning in dividends, we expect this year’s dividend may be in the range of $800-$1000.

Since Avoca is thinly (if ever) traded, its difficult to get a true sense of valuation. Indeed, the company has just 8059 shares outstanding, and the most recent bid price was $6000 (no ask). If that is truly representative of Avoca’s value, that would give the company a market cap of $48 million, a p/e in the 4-5 range, a trailing twelve month dividend yield of 6.7%, and an expected yield of between 12 and 16%, if our estimates are correct.

If that sounds too good to be true, keep in mind the risks inherent in investing in such a company. First, there is no liquidity. Shares are difficult to buy, and sell. Second, Avoca operates in a commodity based (gas royalties) business where there can be very wide price swings. Third, information is difficult to find. Before Avoca delisted (1 for 100 reverse split, to avoid costly provisions of SarbOx) they were required to file financials with the SEC, now they are under no such requirement. Fortunately, for shareholders, Avoca continues to send audited financials, not available to anyone else.

*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.