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Ferrellgas Partners LP Message Board

  • kywildcats56 kywildcats56 Oct 11, 2012 2:45 PM Flag

    This is a natural gas company, isn't it?

    Nat gas prices are climbing, while this thing is sinking fast.....

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    • Not exactly, it's a propane company. Propane is a natural gas liquid that historically tracks oil more than dry nat gas. FGP is a bit like a refiner that buys the input, charges a small spread, and sells it. Depending on how much they gamble on inventory they can get some gains and losses here and there. But for the most part the volumes matter the most - the warm winter last year almost pushed them over the edge IMHO, and they were saved in "grilling season" by the cost of propane coming down due to some extra nat gas output. But now propane exports are going through the roof driving up costs so that game is essentially over. Check out the propane exports at the EIA website:

      My analysis is that FGP's business is in constant secular decline so they keep buying smaller companies to give the illusion of a stable business to the uneducated bagholder. They've consistently paid out a distribution far in excess of their earnings and free cash flow such that their debt has ballooned to almost 6X EBITDA and they may start bumping up against covenant issues at some point. A cold winter might let them hang on a bit longer IMHO. I think a business in modest decline is at best worth 6X EBITDA which makes FGP equity worth close to zero IMHO.

      The investment thesis seems to be "F U, I've always gots me distribution". Classic rear-view mirror thinking akin to someone taking out a second mortaging and thinking the proceeds are "income".

      It's hard for them to cut the distribution as it is 1/3 owned by insiders and moms and pops that sold their businesses to FGP. Their website even touts it as a "retirement income" plan for these people (having all your money in one stock that keeps levering up to pay an unsustainable distribution LOL). Thus every $0.50 per quarter makes the ultimate reckoning that much more painful IMHO.

      Sentiment: Strong Sell

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