Ferrellgas Partners L.P. (FGP) continues to follow a systematic inorganic growth strategy to expand its operations. The partnership announced that it has acquired Motor Propane Service for an undisclosed amount.
Manitowoc and Sheboygan, Wis.-based Motor Propane Service is an independent propane company with a significant presence in the state of Wisconsin.
We note that the recent transaction marks Ferrellgas Partners’ second acquisition in the current fiscal year, taking the tally to roughly 244 to date. On Nov 25, 2013, the partnership acquired Basehor, Kan.-based KanGas Corporation. The acquisition helped the partnership to reduce competition in Kansas.
Ferrellgas Partners’ acquisition strategy involves buying up assets having the same line of operations, which are immediately accretive. In fiscal 2013, the amount invested to acquire new assets was up roughly 180% from the previous fiscal. It is evident from past records that Ferrellgas Partners is strengthening its domestic presence, particularly in the Midwest, Southwest, Northeast and Central regions of the U.S., to tap the growing demand.
Acquisitions in the past have helped Ferrellgas to diversify its core offerings. We expect the current acquisition to be immediately accretive, given Motor Propane Service’s significant presence in the state of Wisconsin. The acquisition will also enable Ferrellgas Partners to increase its customer base besides experiencing operational synergy.
In addition, Ferrellgas Partners reiterated its fiscal 2014 earnings before interest, tax, depreciation and amortization guidance in the range of $265 - $275 million, taking into account the operating impacts and seasonal effects.
However, we believe that a highly competitive propane distribution business environment, over-dependence on a few propane suppliers and higher competition from other energy sources may to some extent limit Ferrellgas Partners’ future performance.
Ferrellgas Partners currently has a Zacks Rank #2 (Buy). Some other stocks from the sector include Harvest Natural Resources Inc. (HNR), Clayton Williams Energy, Inc. (CWEI) and Abraxas Petroleum Corp. (AXAS). While Harvest Natural Resources and Clayton Williams Energy hold a Zacks Rank #1 (Strong Buy), Abraxas Petroleum carries a Zacks Rank #2 (Buy).