Tuesday, December 1, 2020

A Small Cap Equity holding: Uniti Group Inc. (UNIT, $10.16) “Covid Resistant and Growing” by: Elisabeth Desmarais, AIM Student at Marquette University

 Uniti Group Inc. (UNIT, $10.16) “Covid Resistant and Growing” 

By: Elisabeth Desmarais, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


• Uniti Group Inc. (NASDAQ: UNIT) is a unique real estate investment trust (REIT) that focuses on acquiring and building infrastructures in the communication industry. The fiber network focused company operated in the following segments: Leasing, Fiber Infrastructure, Towers, Consumer CLEC, and corporate. 


• While the COVID pandemic is hurting many industries badly, the telecom one is not part of them. 

• The first driver of UNITI’s pitch from this past September was the current upcoming high demand or Fiber Optic Network during the pandemic. The trends and obligations to stay at home and quarantine increased this demand and need for most people. 

• Another driver included Windstream’s Bankruptcy Emergence. At first, the bankruptcy created some uncertainty from the investors in how UNITI will be able to pay their dividend and bounce back since the stock was strongly impacted by this event. However, this gives the company a lot of room to increase the business operations as well as their paid dividends. 

• Windstream who takes a huge part of the organization’s business finally file out of Chapter 11 bankruptcy on September 21st.  The company has a good amount on hand at the moment to fuel growth but was also able to get rid of $4 billion in debt, thus a great positive for both companies. 

Key points: Uniti Group is strongly dependent on Windstream which account for approximately 65% of the company’s revenue. According to that, the coming out of bankruptcy for Windstream was a positive hit for UNITI. Windstream’s CEO, Tony Thomas, mentioned the importance of reaching this milestone, thus leading to a healthier financial and liquidity standpoint for the company. 

While Windstream was part of the big risk of the company, it has to keep a high market share, however, we can be assured that the fiber industry is not too competitive, and that Windstream should be able to cover the 30% of market share they are aiming for. 

Moreover, in the latest third quarter report, the company announced a strategic transaction with Everstream Solutions LLC. This new OpCo-ProCo deal with Everstram includes two 20-year IRU lease agreements which will be covered in 8 states, thus 10,000 route miles and 220,000 stand miles. The cash consideration for Uniti after selling some of their Northeast operations to Everstream plus the IRU payments will equal an approximate of $135 million. 

In addition, the company was officially pitch due to its very unique business model and offerings. The company still has a lot of drivers and opportunities in front of them. The presence and growth of 5G plays a role in the business and the need for greater bandwidth and faster speed connections will remain as a driver of UNIT. However, the consideration of high cost of installation during this economic period can be uncertain. 

While on the drivers of in the pitch of this stock was the dividend policy certainty, it not exactly the case, considering that might actually be uncertain even with the consideration of Windstream bankruptcy emergence. UNIT who was projected to have the covenants lifted once it reaches a 5.75x net leverage, which will likely not happen in the next two following years. The company is a fast growing one, however, not in the dividend aspect like it was projected to be. 

What has the stock done lately?

The company has continued its growing strategy by acquiring new fiber networks operators. These acquisitions include Southern Light and PEG Bandwidth. In October, Uniti Group has purchased Information Transport Solution (ITS), a company who provides connectivity services while having a main focus on educational clients. The company has also declared a cash dividend of $0.15 per common share for the quarter. 

Past Year Performance: From November 5th announcements, the company has leverage ratio at quarter of 6.1 times, based on the net debt annualized adjusted EBITDA. In addition of AFFO per share of $0.42 for the third quarter and $258.8 million revenue. With a current price of 10.16, the stock price has been going up, slowly, for the past year. UNIT’s revenue from Windstream has decrease to 64% from 70% about a year ago.

Source: FactSet

My Takeaway

The company previous legacy, Windstream, fill out for bankruptcy earlier on and got out of it this year on September 21st, thus bringing prosperity to UNITI and its new settlement with the company. The settlement of litigation of Windstream who constitute a great part of the business revenue has been successful. The company has also expanded its operations with the acquirement of new entities with different stands such ad OpCo-ProCo transaction resulting in independent financial and credit terms. UNIT’s diversification strategy and goal of decreasing its revenue percentage from Windstream has come to life, however, it is still not close to its final goal of having 50% of their revenue from them. 

Source: FactSet