Stock Investment

Refinement and energy distribution

Hello there,

This time we are discussing a new portfolio holding on a company we have monitored for a long time, around two years. The company is a mid-size player on propane, LPG and propane distribution sector and provides additional storing and facility services.

The company has been paying dividends for roughly 140 years through different forms on company structures and market cycles. The company has steadily grown its dividend for the past 36 years.

Photo by Mufid Majnun on Unsplash

Company Introduction

UGI Corporation [”UGI”] together with its subsidiaries, distributes, stores, transports, and markets energy products and related services in the United States and internationally. UGI distributes propane to approximately 1.3 million residential, commercial/industrial, motor fuel, agricultural, and wholesale customers through 1,400 propane distribution locations.

UGI distributes liquefied petroleum gases (LPG) to residential, commercial, industrial, agricultural, wholesale and automobile fuel customers; and provides logistics, storage, and other services to third-party LPG distributors. UGI performes retail sales of natural gas, liquid fuels, and electricity to approximately 12,400 residential, commercial, and industrial customers at 42,000 different locations. UGI dominates the distribution at the Pennsylvania region with natural gas distribution to approximately 677,000 customers and supplies electricity to approximately 62,600 customers in 2,560 miles of distribution and midstream lines. In addition, UGI manages natural gas pipeline and storage contracts; develops, owns, and operates pipelines, gathering infrastructure, and gas storage facilities.

Stock price perfomance

The stock price has declined for -57 % in 5 years and -21 % in 1 year. Yes, you got that right. While stock performance has been in full plunge to the downside, current stock price and fundamentals offer interesting possibilities.

Because of market conditions and recent news YTD performance stands around -8 %. Recently UGI released an offering of 610$ million of senior notes with certain terms and conditions and the news were not well received by the public. Reactions were not a disaster, but mixed at minimum, so to be said. During past year price has visited 20$ and 25$ and now is trending towards 22$ region again.

While market conditions, politics uncertainty and several other factors would imply stock price to visit 20$ region again in the short term, we believe on the longterm potential and stock price increase in the future. We expect UGI to further the expand its customer base and strengthen its financial condition and improve the core business. There is no sight of the need for distribution and energy services declined, quite the opposite.

The payout ratio is quite high, mainly because the debt/equity level is hoovering nearby 147 %. However, the fundamentals backing up the investment decisions are 0,63 price/sales ratio (P/S) and 1.02 book value (P/B).

If debt levels are reduced in the nearby future, such actions will have benefits on the overall positioning and fundamentals of the company. Therefore, the risk/reward ratio is analysed together with company potential and accepted for longterm horizon, further backing up the investment decision.

Holding

An investment of 40 UGI shares was made on a share price of 23$. With a dividend yield of 6,5% and 1.50$ quarterly distribution adds up the annual dividend income by 60$.

We are expecting stock price to reach below numbers and if so, we would consider adding this position. Time will tell.

Thank you for being here!