FGP working capital as at July 31, 2012: MINUS $50,875,000
"As of July 31, 2012, Ferrellgas, L.P. had received cash proceeds of $74.0 million from trade accounts receivables securitized, with no remaining capacity to receive additional proceeds"
Hi HO, Hi HO, Where Did The Cash Flow Go?
"For fiscal 2012, our distributable cash flow is approximately 60% of the total cash distributions paid for that period."
Hi HO, Hi HO, I Got My 50 Cents Though!
" We foresee only limited growth in total national demand for propane in the near future."
Hi HO, Hi HO, When Will The Cold Winds Blow?
"The expansion of natural gas into traditional propane markets has historically been inhibited by the capital cost required to expand distribution and pipeline systems, however, the gradual expansion of the nation’s natural gas distribution systems has resulted in the availability of natural gas in areas that were previously dependent upon propane."
Hi HO, Hi HO, The Cracks Begin To Show!
"We have substantial indebtedness and other financial obligations."
That have never increased once. Adjusted for inflation the "dividend" is 35% lower than when it started. And by paying out vastly more than the business has generated the company has racked up a crushing debt load of over $1.2 Billion now.
How do you expect them to keep paying out more than the business generates in cash flow when they are close to their 2:1 fixed charge ratio on their existing debt covenants? Do you drive looking out the windshield or looking in the rearview mirror?
"forecast by EIA 17% increase in propane volume this winter"
From depressed levels last year. Even returning to volumes 2 years ago still wouldn't generate enough to cover the distribution without taking on more debt. Show me your math and I will listen.
Yes, buying companies, overpaying for them, diluting shareholders, and still not growing the business. FGP clearly has to keep "buying companies "just to stabilize it's customer base. Wake up. If you don't believe me read the 10-K:
"Our ability to grow our sales volumes within the propane distribution industry is primarily dependent upon our ability to acquire other propane distributors..."
Now, with all of those acquisitions, how has it been, ahem, growing?
From the 2000 10-K "We serve approximately 1.1 million customers"
From the 2012 10-K - "We serve approximately one million residential, industrial/commercial, portable tank exchange, agricultural, wholesale and other customers"
Wow, all those acquisitions and still the customer base shrinks. And of course they don't tell you how many "customers" are BBQ tank exchange vs. end user sales which makes up 75% of their volume.
"this should speak volumes "
What speaks volumes to me is pure simple mathematics.
The company is very close to a debt ceiling, if not over it, and they consistently pay WAY more in distributions than the business generates in cash flow, the business is declining so they must keep acquiring and diluting to stabilize it, and it's is trading at a valuation of 13X even a good year of EBITDA and 15x this past year.
FGP longs' investment thesis seems to boil down to "I always gots me 2 bucks and me likes me 2 bucks".
So my challenge to you is please show me mathematically how the company can come close to continue paying that on a sustainable basis, and why a flat to declining cyclical business is worth 13-15x EBITDA.
IMHO they are on a treadmill to the toilet - the "yield" is critical to their acquisition business model and so many insiders own it there will be chaos if they cut it. So they borrow and borrow and borrow and borrow. Until....