FRP Holdings, a real estate company quietly operating out of Jacksonville, Florida, might just be harboring a secret worth hundreds of millions, possibly even billions, of dollars. While analysts are buzzing about their strategic shift towards industrial development and the potential of their DC-area multifamily portfolio, there's a sleeping giant within their asset mix that's attracting surprisingly little attention: **aggregates.**

FRP's Mining and Royalty Lands segment doesn't exactly scream "sexy investment." It involves leasing land to mining companies like Vulcan and Martin Marietta, who extract the crucial aggregates that underpin our infrastructure – think roads, bridges, and buildings. But beneath this seemingly mundane business lies a potential gold mine, fueled by a recent trend in the aggregates market that seems to have flown under the radar.

Recent acquisitions by Martin Marietta, specifically their purchase of Bluewater Industries, offer a tantalizing glimpse into the escalating value of aggregate reserves. While Martin Marietta hasn't publicly disclosed the specifics of the valuation, a back-of-the-envelope calculation, based on estimated reserves acquired and the purchase price, suggests a per-ton valuation of around $2.50.

Now, let's apply this figure to FRP Holdings. Their last reported reserve estimate stands at a staggering 500 million tons. At $2.50 per ton, that's a whopping $1.25 billion in potential value – and that's just the reserves. This figure doesn't account for the inherent value of the land itself, which, post-mining, can be repurposed for residential or commercial development, adding another layer of hidden value.

But here's the kicker: FRP doesn't operate the mines; they lease the land and collect royalties. This royalty structure translates to a remarkably low-maintenance, high-margin business model. Unlike their mining tenants, who grapple with significant capital expenditures for equipment, FRP enjoys a relatively steady stream of income without the burden of replacing aging machinery. This unique dynamic suggests that traditional valuation metrics like EBITDA multiples, often applied to operating companies, may significantly *understate* the true value of FRP's aggregates business.

A more accurate reflection of their earnings power might be found in examining their EBIT, or EBITDA less CapEx, which highlights the cash flow generated after accounting for capital expenditures. Over the past nine years, FRP's aggregate business has consistently outperformed expectations, delivering robust owner earnings that defy typical valuation models.

FRP Holdings Q1 2024 Earnings Call - Key Takeaways

The following chart highlights the revenue and NOI distribution across FRP Holdings' business segments, as reported in their Q1 2024 Earnings Call. Notably, the Industrial & Commercial segment is showing strong growth, aligning with their strategic focus on industrial development.

Could FRP be sitting on a billion-dollar secret? It's certainly possible. While their industrial development strategy holds promise, and their multifamily portfolio boasts strong assets in a recovering market, the potentially explosive value of their aggregates segment deserves far greater scrutiny. Perhaps it's time for analysts and investors to dig a little deeper and uncover the true potential of this often-overlooked gem.

Hypothetical Valuation

The disparity between FRP's current market capitalization and the potential value of its aggregates business alone suggests a significant undervaluation. This, combined with the company's consistent owner earnings performance and low-maintenance business model, warrants further investigation into the true worth of this often-overlooked asset.

"Fun Fact: FRP Holdings traces its roots back to Florida Rock Industries, a company founded in 1954 by John D. Baker II, the current Chairman, and his father. From humble beginnings, they built a powerhouse in the aggregates industry, laying the foundation for the diverse and potentially undervalued real estate company that exists today."