https://seekingalpha.com/news/4044906-unit-corporation-declares-250-dividend-and-a-special-dividend-of-15?source=content_type%3Areact%7Csection%3Asummary%7Csection_asset%3Aall_news%7Cfirst_level_url%3Asymbol%7Cbutton%3ATitle%7Clock_status%3ANo%7Cline%3A1
have posted about this one before. up 15% today and announced a 15.00 special dividend on top of last years 10.00 special and 10.00 annual regular dividend. wondering if it will sell off when the dividens are announced. undervalued and underfollowed.
UNTC
Re: UNTC
This is an excellent analysis by Rich Howe of Stock Spin-off investing the site where i received this idea. Rich gave his permission for me to post his work. He does very good detailed analysis of underfollowed ideas.
Good morning,
UNTC just announced some positive news which I covered below. Long story, short. I still like the name and don't plan to sell any shares despite the move up.
Let me know if you have any questions!
Best,
Rich
--------------------------------
Unit Corp To Pay $22.50 in Dividends in December
December 11, 2023
Current Price: $65.50
Price Target: $68.00
Imminent Dividends: $22.50
Total Return: +59%
Summary
Unit Corp (UNTC) announced on Friday that it will pay a $2.50 quarterly dividend, $15 special dividend and additional $5 dividend if the sale of its Texas Panhandle asset closes as expected. The stock is up $9, but I think it still looks cheap. It’s my biggest position so I’m not adding, but I think it’s a good buy for anyone that doesn’t own the stock.
Additional Analysis
The key question is the following:
“What is Unit Corp worth after the dividends are paid out?”
First, let’s look at its capitalization.
Pro-forma for the Texas Panhandle Sale, the dividends, and FCF generated during Q4, I estimate that the company will have $67MM of net cash.
UNTC is currently trading at $65.50. If you adjust for the $22.50 in imminent dividends, the stock is trading at $43.
At that price, UNTC has a market cap of $413MM and an enterprise value of $347MM.
Unit is on pace to generate $144MM of free cash flow in 2023.
My preliminary estimate is the company can generate $100MM in 2024.
As such, UNTC is trading at a pro forma price to FCF multiple of 4.1x and an EV / FCF multiple of 3.5x.
This just seems too cheap given the company is liquidating and returning all cash to shareholders.
What is the stock worth?
The oil and gas business has generated $59.6MM of EBIT YTD or $78MM on an annualized basis.
Oil and gas companies trade at 5.1x TTM EBIT as shown below.
Unit’s production is declining organically at ~13% per year so let’s assume it’s worth 4.0x. At that valuation, the upstream oil and gas business is worth $313MM.
The drilling business has generated $65MM of EBIT YTD or $86.6MM on an annualized basis. It has generated $138.3MM of revenue YTD or $184.3MM on an annualized basis.
Drilling peers trade 1.5x TTM revenue.
At that valuation, the drilling business is worth $276.6MM.
The other way to look at the drilling business is on a replacement cost basis. Management estimates it would cost $35MM to build a replacement BOSS drilling rig. From my research, this seems reasonable/conservative.
The company owns 14 BOSS drilling rigs implying a drilling fleet replacement cost of $490MM (14 x $35MM).
Let’s use our more conservative (comps based) valuation ($276.7MM) for the drilling business.
Add it all up and Unit Corp is worth $68 per share (after the $22.50 in dividends are paid out).
So just to bring it together, Unit is trading at $43 (adjusting for the imminent dividends) and it’s worth $68. Over 50% upside. Plus, the company is in liquidation mode so it will continue to pay dividends as cash is generated and assets are sold.
Disclosure/Disclaimer:
Rich Howe owns shares of UNTC. All expressions of opinion are subject to change without notice. All published emails/articles/correspondence is provided for informational purposes. We do not warrant the completeness or accuracy of this content. Please do your own due diligence and consult with an investment adviser before buying or selling any stock mentioned on www.stockspinoffinvesting.com.
Good morning,
UNTC just announced some positive news which I covered below. Long story, short. I still like the name and don't plan to sell any shares despite the move up.
Let me know if you have any questions!
Best,
Rich
--------------------------------
Unit Corp To Pay $22.50 in Dividends in December
December 11, 2023
Current Price: $65.50
Price Target: $68.00
Imminent Dividends: $22.50
Total Return: +59%
Summary
Unit Corp (UNTC) announced on Friday that it will pay a $2.50 quarterly dividend, $15 special dividend and additional $5 dividend if the sale of its Texas Panhandle asset closes as expected. The stock is up $9, but I think it still looks cheap. It’s my biggest position so I’m not adding, but I think it’s a good buy for anyone that doesn’t own the stock.
Additional Analysis
The key question is the following:
“What is Unit Corp worth after the dividends are paid out?”
First, let’s look at its capitalization.
Pro-forma for the Texas Panhandle Sale, the dividends, and FCF generated during Q4, I estimate that the company will have $67MM of net cash.
UNTC is currently trading at $65.50. If you adjust for the $22.50 in imminent dividends, the stock is trading at $43.
At that price, UNTC has a market cap of $413MM and an enterprise value of $347MM.
Unit is on pace to generate $144MM of free cash flow in 2023.
My preliminary estimate is the company can generate $100MM in 2024.
As such, UNTC is trading at a pro forma price to FCF multiple of 4.1x and an EV / FCF multiple of 3.5x.
This just seems too cheap given the company is liquidating and returning all cash to shareholders.
What is the stock worth?
The oil and gas business has generated $59.6MM of EBIT YTD or $78MM on an annualized basis.
Oil and gas companies trade at 5.1x TTM EBIT as shown below.
Unit’s production is declining organically at ~13% per year so let’s assume it’s worth 4.0x. At that valuation, the upstream oil and gas business is worth $313MM.
The drilling business has generated $65MM of EBIT YTD or $86.6MM on an annualized basis. It has generated $138.3MM of revenue YTD or $184.3MM on an annualized basis.
Drilling peers trade 1.5x TTM revenue.
At that valuation, the drilling business is worth $276.6MM.
The other way to look at the drilling business is on a replacement cost basis. Management estimates it would cost $35MM to build a replacement BOSS drilling rig. From my research, this seems reasonable/conservative.
The company owns 14 BOSS drilling rigs implying a drilling fleet replacement cost of $490MM (14 x $35MM).
Let’s use our more conservative (comps based) valuation ($276.7MM) for the drilling business.
Add it all up and Unit Corp is worth $68 per share (after the $22.50 in dividends are paid out).
So just to bring it together, Unit is trading at $43 (adjusting for the imminent dividends) and it’s worth $68. Over 50% upside. Plus, the company is in liquidation mode so it will continue to pay dividends as cash is generated and assets are sold.
Disclosure/Disclaimer:
Rich Howe owns shares of UNTC. All expressions of opinion are subject to change without notice. All published emails/articles/correspondence is provided for informational purposes. We do not warrant the completeness or accuracy of this content. Please do your own due diligence and consult with an investment adviser before buying or selling any stock mentioned on www.stockspinoffinvesting.com.
Re: UNTC
Rich Howe has said even if it falls 23.00 based on the dividend he is expecting it to trade back to 65 or so which is huge upside. So far he has been right and have done well. Curious as to who may potentially take it out or if it just liquidates.