By Alex Gavrish, Etalon Investment Research; author of “Wall Street Back To Basics”
Jana Partners stake
In October 2013, well-known activist hedge fund Jana Partners, managed by Barry Rosenstein, disclosed a 7.5% stake in shares of QEP Resources Inc (NYSE:QEP). At the time of the filing, the fund disclosed that it made initial investment in shares over a year ago. Company’s shares did not move much since QEP Resources started trading back in 2010 at a price of $34.5. On January 13th, 2014, Jana Partners filed an update in which it disclosed that it has increased its holding in the company and currently owns a 9.5% stake which was acquired for a total purchase price of $498.3 million. This means that Jana Partners’ cost basis is about $29.34 per share.
QEP Resources: overview
QEP Resources Inc (NYSE:QEP) is a holding company with three major lines of business: natural gas and crude oil exploration and production; midstream field services; and energy marketing. These businesses are conducted through the company’s three principal subsidiaries: QEP Energy acquires, explores for, develops, and produces natural gas, oil, and natural gas liquids; QEP Field Services (which includes the ownership and operations of QEP Midstream Partners, LP) provides midstream field services, including natural gas gathering, processing, compression, and treating services, for affiliates and third parties; and QEP Marketing which markets affiliate and third-party natural gas and oil, and owns and operates an underground gas-storage reservoir.
QEP Resources: recent developments
On December 9th, 2013, QEP Resources Inc (NYSE:QEP) announced that it had acquired oil properties in the Permian Basin for $950 million. The acquisition will add proved reserves of approximately 47 million barrels of oil equivalent and approximately 300 million barrels of potentially recoverable resource. The price paid reflects an attractive valuation of less than x4 estimated 2015 adjusted EBITDA. The properties will diversify the company’s exploration and production footprint and increase high-margin crude oil and gas liquids production.
On January 30th, 2014, QEP Resources Inc (NYSE:QEP) provided update on strategic initiatives. These initiatives included appointment of two new board members, which will increase the upstream and midstream expertise of its Board of Directors; authorization of the return of capital to shareholders through a $500 million share repurchase program; divestiture of non-core E&P assets located in the Midcontinent during the first half of 2014; and full separation of QEP Field Services Company (including the company’s 57.8% interest in QEP Midstream Partners LP), from QEP Resources into a stand-alone company. In parallel with the preparation of the required SEC filings to prepare the spin-off, the company and its advisors will evaluate proposals for alternative transactions for separating the midstream assets.
Based on a recent share price of $31.29 per share, QEP Resources Inc (NYSE:QEP) had a market capitalization of $5.6 billion and an enterprise value of $8.3 billion. The company is valued at an EV/EBITDA multiple of x5.38, based on a trailing 12 months period (as of September 2013). As an activist investor recently increased its stake and the company listened to shareholders and actively focuses on shareholder value creation, investors might find this an interesting investment opportunity.