Comparing Whiting Petroleum's Post-Bankruptcy Enterprise Value To Its Reserves

On April 1^st, Whiting Petroleum Corporation (WLL) announced it was going bankrupt. In late April, it announced how the company will be split between current lenders and shareholders after bankruptcy.

Based on the company’s bond prices, we can estimate the post-bankruptcy Whiting Petroleum’s enterprise value. We can then compare that enterprise value to the value of the company’s oil and gas reserves.

In doing so, we can see how the market is valuing those reserves. Using that valuation, we can guess what other distressed oil and gas companies’ reserves might be worth in bankruptcy. (Read More)

Alternative Financial Services Are A Major Source Of Earnings For Republic Bancorp

At first glance, Republic Bancorp, Inc. (RBCAA) looks like an ordinary regional bank. With $5,601 million in assets, Republic was Kentucky’s biggest bank at the end of 2019. Republic was also America’s 172^nd largest bank.

Unlike most regional banks, though, Republic Bancorp earns around 30% of its net income from alternative financial services. The term “alternative financial services” covers products such as high interest loans and tax refund advances. Customers often use these services when they can’t access traditional bank services. Such customers are often poorer and pay higher costs.

Republic Bancorp’s Republic Processing Group (RPG) business is a big provider of these services. RPG has two segments. Tax Refund Solutions (TRS) offers tax refund advances. TRS also offers “refund transfers” that let tax filers pay for tax preparation using their refunds. Republic Credit Solutions (RCS) offers loans, mainly high interest lines of credit.

These two segments earned $28.246 million of the company’s $91.699 million in 2019 net income. It is very unusual for much of a bank’s earnings to come from alternative financial services. Since these segments are so important, we will analyze them to better understand their impact on the company. (Read More)

How Much Value Has Ladder Capital Created For Shareholders Since Its IPO?

One of my favorite investment bloggers, Clark Street Value, recently wrote about mortgage real estate investment trust (mREIT) Ladder Capital (LADR). Ladder mainly invests in commercial mortgage backed securities (CMBS), or pools of mortgage loans to businesses.

The post described how Ladder is well positioned to survive the current downturn due to its high quality assets and use of unsecured debt to fund those assets. It provided much information about both topics; I encourage interested readers to read it.

As an investor, though, I am not just interested in how well a company might survive the current downturn. I am also interested in the long term value the company can generate for me if I invest.

This is especially important since downturns offer two common types of opportunities for investors:

1.  High quality companies trading at a modest discount from normal prices.
2.  More average companies trading at a much larger discount to their intrinsic value.

In the long run, high quality companies compound an investor’s capital far more than average ones. This is true even if those average companies are purchased at much cheaper valuations.

In that context, after reading Clark Street Value’s post, I was curious which type of company Ladder Capital is. Is it a high quality company I can “buy and hold” forever while it compounds my investment? (Read More)

Equinor, One Of The Greenest Oil Majors, Could Be Undervalued

Norwegian company Equinor (EQNR) (STOHF), once named Statoil, is one of the greenest big oil companies. Morningstar’s January 2020 report “Understanding the Emissions Challenge” evaluated each of the oil majors based on several metrics for carbon emissions reduction. Equinor was the only company to score in the top third in each metric.

In that context, I wanted to look at the company’s investment value. Equinor has three sources of value. The first is its Exploration and Production (E&P) operations, which explore for and produce oil and natural gas. The second is its Marketing, Midstream, and Processing (MMP) segment, which transports, processes, and sells oil, gas, and electricity. Finally, the company’s Other segment develops renewable energy projects and new oil and gas technologies, and also handles other corporate functions.

By adding up the value of these three parts, we can calculate the Equinor’s valuation. That valuation turns out to be around the same as the company’s enterprise value, which means Equinor could be undervalued. (Read More)