Capital Markets: Resource Development Firms, February 2016

Cadiz

Cadiz (CDZI) stock price continues its rebound in response to an announced lease of lands in the Cadiz Valley to Water Asset Management who paid $12 million for a land lease and negotiated the lease of 7,500 acres at a price of $43 million.  The price still remains below the level before the release of a letter dated October 2, 2015 by the Bureau of Land Management determining that the Cadiz Project is not within the scope of the Arizona-California Railroad right-of-way over federal lands. If the determination stands, BLM believes that the Cadiz Project would need BLM approval for a right-of-way over federal lands for the project’s water conveyance pipeline. (For background on the BLM determination, see “BLM Determines that Cadiz Project Needs Federal Approval,” JOW October 2015).

The price now stands 47.4% below the price 52 weeks ago (when its price fluctuated above $10/share) and 56.5% below its expected price. The stock price is 90% of its 10-week exponential moving average. Prior to the lease announcement, the price had moved up on the news that the company had rolled over its debt with creditors.

Cadiz (02-2016)_WEB

CDZI price leaped in August 2014 with issuance of a court ruling dismissing all challenges to the project based on the alleged inadequacy of environmental review. The price had started declining in March 2014 when Business Week published a one-sided article about opposition to Cadiz’s Project.

CDZI stock had been underperforming relative to the returns forecasted by the Capital Asset Pricing Model by an annual rate of 6.1% from January 2006 through December 2012. The Company announced a comprehensive refinancing package in March 2013 to accommodate project financing for the Cadiz Valley Water Conservation, Storage and Recovery Project. The project faces litigation challenges, although the Company has been successful in securing dismissals or settlements in mid to late 2013. The company also secured further working capital from an agreement with a senior lender in October 2013. The turnaround in the company’s stock in the latter half of 2013 has closed the gap of stock performance relative to expected prices (projected by the Capital Asset Pricing Model adjusted by historical under performance).

 

Pico Holdings

PICO Holdings (PICO) stock price remains in free fall. The price now stands 64.2% below its expected price. The company is suffering losses in its three major business segments: water resources and storage, agribusiness and real estate. PICO’s price has declined by 51.4% over the past 52 weeks.  A price turnaround last April, which proved temporary, may have been prompted by the announcement that the firm has retained an investment banker to monetize its investment in Northstar (canola operations), one of the sources of operating losses. The price is 6% below the 10-week exponential moving average. When will PICO’s price reach bottom?

PICO (02-2016)_WEB

PICO stock had been underperforming relative to the returns forecasted by the Capital Asset Pricing Model by an annual rate of 4.9% from January 2006 through December 2012. The company’s stock has performed strongly in 2013, increasing by about 19% in 2013 in comparison to a decline in expected prices forecasted by the Capital Asset Pricing Model (adjusted by historical underperformance). Favorable developments for the company include a planned IPO for the company’s residential land development and residential homebuilding subsidiary, improvement in farming operations in production of canola oil and an option agreement to sell 7,240 AF of water rights in Lincoln County, Nevada to a power generation project at $12,000/AF.