Unit Corp OTCMKTS:UNTC - The Christmas dividend… now what?

Here’s the latest from Canadian Value Investors!

• How does Disney make money off of your visit, and how is that turnaround going to go anyway?

• Canadian oil and gas leverage

• Brazilian Boom

• Unit Corp OTCMKTS:UNTC - The Christmas dividend… now what?

How does Disney make money off of your visit, and how is that turnaround going to go anyway?

Disclosure: No position currently, owned previously, and always evaluating. Valueinvestingsubstack did an interesting post on Disney. Will Disney generate ROIC? Maybe. But, the park chart is neat.

ROIIC, Pricing Power & The Outsider CEO | DISNEY Financial Deep-Dive (Part IV)

Canadian oil and gas leverage

https://x.com/JeremyMcCreaCFA/status/1733487093744369727

Brazilian Boom

Even with the big run up in things like PBR (disclosure: we are still long), Brazil remains significantly below where they used to be. They continue to have relatively low multiples for the market as a whole and we still think it is a great hunting ground for undervalued companies. Chart via https://x.com/TaviCosta/status/1724817995950653710

Unit Corp OTCMKTS:UNTC - The Christmas dividend… now what?

Disclosure: We do not own this, but are evaluating and might own in the future.

UNTC has been on our radar for a while and a just announced year-end dividend of 40% of their market cap made us finally take a closer look. We were going to send this article over the December 9^th weekend, but wanted to see how it would trade on Monday the 11^th after their Friday dividend announcement and update accordingly. So far, it was a mistake not to buy it when we found it, but is there still something here? Here we go.

UNTC is actually a restructuring that emerged in 2020. It blew up in 2019/2020 when a looming $650MM debt maturity in May 2021 was coming up. Here’s their “emergence” presentation. https://unitcorp.com/wp-content/uploads/2021/06/Unit-Emergence-Presentation-122020.pdf

It was really three few companies, now two companies:

• An upstream oil and gas company selling assets

• A drilling rig company

• Superior Pipeline Company – sold

And they also happen to have $200MM of cash on a market cap of ~$540MM with no material debt. Three years later, the Company:

• Continues to sell oil and gas assets (full list in notes)

• Has paid out lots of dividends and is trading at low single digit free cash flow multiple… but what is true free cash flow? See valuation.

• Current albeit dated presentation here - https://unitcorp.com/wp-content/uploads/2023/03/Investor-Presentation-March-2023.pdf

The company plan has been to:

• Sell oil and gas assets (see full list in notes, another happening in Q4 discussed below) – We believe they will likely sell their remaining upstream assets to then either run or sell their drilling business (see valuation)

• Distribute cashflow through base dividend, supplemented by special dividends and repurchases. E.g. in Q2 2023, the Company began paying a quarterly variable dividend of $2.50/share, a January 2023 special dividend of $10/share, and repurchased $79MM of shares through December 2022.

• Then on December 8^th, the Company announced a Christmas present consisting of $15/share special dividend, their regular $2.50 dividend, and a conditional cash dividend of $5 depending on the closing of the sale of their Texas Panhandle assets.  https://unitcorp.com/unit-corporation-declares-quarterly-and-special-cash-dividends/

• The Company is effectively run by key owner Prescott Group Capital Management L.L.C. and appears to be aligned with shareholders; they own ~36%, and the CEO appointed earlier this year - Philip Frohlich – is a Principal/PM at Prescott. There are no other material owners.

Based on simple book value, this is not too exciting. But what do you actually get at the end of the day?