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Ferrellgas Partners LP (FGP - Analyst Report) has announced the recent acquisition of IGS Propane for an undisclosed amount. Connecticut-based IGS Propane is a unit of Industrial Gas and Supply. It specializes in supplying propane to industrial customers and provides small propane tanks to the general public of Naugatuck, Connecticut. The acquisition will be immediately accretive to the partnership.
This transaction marks the partnership’s third acquisition in the current fiscal year, taking the tally to nearly 240 to date.
In fiscal-year 2011, Ferrellgas Partners served over 1 million customers in all 50 states, the District of Columbia. As one of the nation's largest propane-distributors, the partnership plans to consolidate its client-coverage. Prior to this acquisition, Ferrellgas Partners delivered propane to its Connecticut-customers from neighboring states as it did not have any local operation.
We know that transporting propane from other locations is a costly as well as time-consuming factor. However, present transaction will allow the partnership to provide service to its local clients in time. This step will also enable Ferrellgas Partners to curtail transportation expenses, which will in turn, subsequently improve its financial performance. Moreover, propane distribution industry is matured with limited growth opportunity. The partnership can only improve its market share by acquiring other propane distributors.
Recently, Ferrellgas Partners has made few significant buys. The partnership purchased El Paso, Texas based Flores Gas in October 2012 and Sacramento, California based Capitol City Propane in September 2012. These acquisitions will enable the partnership to strengthen its presence in the state along with adding customer headcounts.
It is evident that Ferrellgas Partners strongly follows inorganic growth strategy to expand its domestic operation, particularly in the Southwest and Northeast areas of the U.S. These acquisitions are part of the partnership’s long-term strategy to grow by an aggressive pursuit of well-run propane companies.
However, we remain skeptical about the highly competitive propane distribution business environment, seasonal variance in the demand for propane, over-reliance on few propane suppliers and higher degree of competition from other energy sources.
Like its peer Suburban Propane Partners L.P. (SPH - Snapshot Report), Ferrellgas Partners LP also has a short-term Zacks #3 Rank (Hold rating).
Overland Park, Kansas-based Ferrellgas Partners is a leading distributor of propane and related equipment in the U.S. The partnership provides propane services to residential, industrial, portable tank exchange, agricultural and wholesale customers. Ferrellgas Partners has a market capitalization of $1.41 billion.
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