Ferrellgas Partners L.P. (FGP) lowered competition by acquiring Basehor, Kan.-based KanGas Corporation for an undisclosed amount. This independent propane company has been competing with Ferrellgas Partners for the last 30 years.
This acquisition will enable the partnership to enhance its customer base besides experiencing operational synergy.
We note that the recent transaction marks Ferrellgas Partners’ first acquisition in the current fiscal year, taking the total tally to roughly 243 to date.
It is evident from past record that the partnership follows a systematic inorganic growth strategy to strengthen its domestic presence, particularly in the Midwest, Southwest and Northeast regions of the U.S.
In the last fiscal, Ferrellgas Partners completed five acquisitions. The deals worth mentioning are Utah-based Western Petroleum acquired in Apr 2013, New York-based Mr. Bar-B-Q in Mar 2013 and Connecticut-based IGS Propane in Dec 2012.
The partnership is benefiting from its previous acquisitions in terms of diversifying product offering in both core as well as non-core segment besides expanding market coverage. The amount invested to acquire new assets in fiscal 2013 was up roughly 180% than the previous fiscal.
We note that Ferrelgas Partners’ acquisition strategy involves buying up assets having the same line of business and which are immediately accretive to the business. The partnership expects the current acquisition to be immediately accretive, given KanGas Corporation’s significant presence in the state.
However, we believe that over-reliance on a few propane suppliers, a highly competitive propane distribution business environment and steep competition from other energy sources might constrain Ferrellgas Partners’ future performance.
Ferrellgas Partners currently has a Zacks Rank #3 (Hold). Stocks from the sector that are presently performing well include Abraxas Petroleum Corp. (AXAS), Bonanza Creek Energy, Inc. (BCEI) and Harvest Natural Resources Inc. (HNR), each with a Zacks Rank #1 (Strong Buy).
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