Parks! America - PRKA

As someone who traffics in the obscure and the unusual, I am always particularly interested when I happen across a company with a unique business model. Often, the company is the only publicly-traded entity in its line of business. As far as I can tell, this is the case with Parks! America Inc. Parks! America operates wildlife parks in Pine Mountain, Georgia and Stafford, Missouri under the "Wild Animal Safari" brand. These are exactly as they sound, enclosed areas where exciting non-native wildlife roams for visitors to observe. At both locations, visitors can observe dozens of species in a natural(ish) setting. Visitors can feed some of the more amiable species. I would imagine this does not include the wolves and tigers.

Now, I know what you might be thinking, and it's the same thing that occurred to me when I first ran across the company. How do I know this isn't some shifty carnival-type operation where sad-eyed, underfed wild creatures pace in circles in tumbledown enclosures? While I have not visited either of Parks! America's properties in person, visitor reviews tell a different story. Tripadvisor reviews for both the Georgia and Missouri properties are overwhelmingly positive, with hundreds of reviewers speaking of their good experiences, especially families with young children.

Financially speaking, running a wildlife park appears to be a surprisingly good business. In 2016, Parks! America reported an operating margin of 28% and a return on tangible equity of 20%, adjusted for a one-time tax benefit. But these figures don't tell the whole story. For several years now, Parks! America's Georgia property has been a standout, strongly profitable and with growing revenues. However, the company's Missouri property has struggled. Wild Animal Safari in Missouri has only recently achieved an operating profit for the first time since 2012. Below is a breakdown of yearly results at each property.

So what we really have in Parks! America is a company with one astonishingly profitable and successful property, and one struggling property. To me, that spells upside potential. If Parks! America is able to build on the small amount of positive momentum their Missouri property has generated, a sharp increase in profits could result. Alternatively, it the company chose to pack it in and sell the property, significant capital could be released.

For the trailing twelve months, Parks! America's wildlife parks produced $2.29 million in operating income. Corporate expenses were $0.66 million, leaving company EBIT of $1.63 million. Annualized interest expense in the most recent quarter was $0.20 million, leaving pre-tax income of $1.43 million. Parks! America is not a taxpayer for the moment as it works off its $1.9 million federal NOL. Georgia state corporate income tax is 6%, giving pro forma trailing net income of $1.34 million, or 1.8 cents per share on a market cap of $9.7 million. Oh, did I forget to mention that Parks! America is tiny? Indeed, it's one of the smallest public companies I have run across that actually generates attractive margins and cash flow.

At a market cap of $9.7 million, Parks! America trades at 7.2x trailing earnings. These earnings will likely rise substantially in fiscal 2017 if the company can again increase visitor numbers at its Georgia property and increase margins at its Missouri property.

Parks! America does carry debt, but the terms are generous compared to the usurious rates that most other companies this size must pay. In 2013, the company secured a 20-year loan from a local Georgia bank, secured by substantially all the company's assets. The loan bears interest at prime plus 2.50%, currently 5.75%. Principal amortization requirements are minimal, so the company enjoys a lot of freedom to deploy its cash flows as it sees fit.

For the trailing twelve months, Parks! produced operating cash flow of $1.34 million. After capex of $0.43 million and principal repayments on debt of $0.12 million, the company produced $0.79 million in true free cash flow. For now, that cash sits on the balance sheet. Assuming the company's profitability remains strong, the biggest question for me is what the company will ultimately decide to do with all the cash they will generate. Will they build another park? This could be lucrative, but also potentially risky if the park runs into the same troubles the Missouri property has faced. Perhaps they'll begin paying dividends. A management buyout is also a possibility. Insiders control about 55% of the company's shares, and it wouldn't take a lot of capital to make an offer to the minority shareholders. Including other major holders, only about 31% of the company's shares are freely floating.

Readers looking to do further research on Parks! America should be aware that this company is extremely small and its shares are very illiquid. I own a very small stake, which took me months to accumulate. And as usual, it's far easier to buy into these tiny companies than it is to sell out of them. Shares of Parks! America should be considered a very long term investment.

Alluvial Capital Management, LLC holds shares of Parks! America. Alluvial may buy or sell shares of Parks! America at any time.

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