Here is a bullish opinion on UTI's prospects from a respected poster on the AOL "Oil & Gas Industry" board:
Subject: Re: UTI Buying Fracmaster
Date: Mon, May 3, 1999 22:14 EDT
From: P Engr
Message-id: <19990503221425.08591.00001716@ng-fc1.aol.com>
>One has to wonder why UTI is going on this buying binge, particularly
>following the adoption of a poison pill and poor March results. It sounds
>like the appropriate actions in either of two cases: (i) they are an
>acquisition candidate themselves and don't want to sell or (ii) they are out
>to land some bargains while the getting is good. Obviously, number two is
>the public response but number one could be or could have
>been a possibility.
>
>As for this company being grossly undervalued, I think that it has been hyped
>up a bit but could be justifying this price level by year end. Right now, it
>can't justify its price (unless it is a buyout target) or the rigs it
>recently bought (only four out of 16 rigs are running!). I like the company,
>but the prospect of adding more of this is fraught with risk IMO.
>
>
The addition of fracmaster, simply compliments
UTI ownership of the pumping services division
here in the states, wherein, they had the exclusive
rights (over the past few years) to market the
fracmaster patented stimulation technology
(CO2 fracs without ANY fluid utilized)
Fracmaster is a good strategic fit, because it
gives UTI the Canadian access to these type of
services. Whereas, worldwide, in the future.
(perhaps they will sell the patents?? to
DS or HAL????)
As to the NORT acquisition----As long as
UTI can exchange it's common for these types
of undervalued assets, whilst, bring into the
company, motivated (via stock ownership),
very savy drilling proprietors along with
their staffs of drillers and pushers-----I think
that Exceptional, Enviable (by it's competitors),
Growth will accelerate. The UTI recipe is the
best in the industry, IMO.
As to valuation, consider the following:
UTI----$14/share, No Debt (working capital
negates), 16.2 million (fully diluted)
Market cap.= $226 million.
With (120) land rigs, the Market cap./rig
is $1.89 million.
Compare this with NBR, GW and PTEN-----
----------Around, $5 million, $5.5 million and
$ 3 million/rig respectively.
IMO---it is abundantly clear that UTI, is extremely
undervalued relative to it's peers at this
time. Hence, it is distinctly a opportune
BUY ------IMO, the best value of all of
the land contractors. My target is
$40 to $50/share.
When the drilling market gets tight, the type
of rigs that UTI owns, will generate EBITDA's
of around $1million/rig /year. Hence, even without any further acquisitions, UTI's fleet
will generate around $120 million EBITDA
or around $7.50/share at the next cycle peak.
At 10x's Ebitda, you have a $75/share stock.
Lastly, replacement value of UTI's fleet,
would be around $5 to $7 million/rig for
new equipment. Which yields a stock
price of $37 to $52/share valuation.
Hang on tight to UTI and add to positions
on pullbacks-----if stock gaps at opening,
add to positions daily, if gap can't be closed.
The morning pattern is one of strong accumulation, marked by gapping openings,
followed by bottoming at or above gap opening
after the overnight surge in buying. I look
for the momentum to increase as the stock
becomes discovered.
Enjoy the Move!!
All IMHO!!
P Engr.
How does $40.00-$50.00/share sound?
Ron Clark |
