<

Must-know: An investor's guide to Suburban Propane Partners

Must-know: An investor's guide to Suburban Propane Partners (Part 1 of 7)

Overview: Suburban Propane Partners

Company overview

Suburban Propane Partners L.P. (SPH) is a distributor of propane, fuel oil, and related products and services, as well as a marketer of natural gas and electricity, serving 1.2 million customers in 41 states from approximately 750 distribution locations (concentrated in the East and West Coast).

SPH is organized into three principal business segments. The propane segment (which generates the bulk of SPH’s revenues and cash flows—534 million gallons sold in fiscal 2013), the fuel oil and refined fuels segment, and the natural gas and electricity segment.

The company operates from 750 retail locations and has an internal fleet of 832 transport trucks, 106 fuel oil tank wagons, over one million propane storage tanks, and approximately 304,390 portable propane cylinders.

SPH has a market cap of $2.8 billion and an enterprise value of $4.1 billion (as of June 26, 2014). It’s currently trading at an EV/2014E EBITDA of ~11.15x. Adjusted earnings before interest, taxes, depreciation, and amortization (or EBITDA) for the three months ending December 31, 2013, was $117 million. LTM EBITDA was $347 million and LTM revenue was $1.9 billion as of June 26, 2014. The company is currently trading at 7.4 % with distribution amount per LP unit as $3.50.

Organizational structure

The general partner for SPH is Suburban Energy Services Group LLC, which holds 784 common units in the partnership, and apart from this has no economic interest in the partnership.

SPH’s Organizational StructureEnlarge Graph

Suburban Energy Finance Corp., is a 100%-owned finance subsidiaries of Suburban Propane Partners. Their sole purpose is to serve as issuers or co-obligors for debt securities issued or guaranteed by Suburban Partners.

In August 12, 2012, SPH completed the acquisition of Inergy Propane LLC including certain wholly-owned subsidiaries of Inergy Propane LLC, and the assets of Inergy Sales and Service Inc. which included retail propane assets and operations, as well as the assets and operations of the refined fuels business, of Inergy L.P.

SPH’s propane segment, which generates the bulk of its revenue, is primarily engaged in the retail distribution of propane to residential, commercial, industrial, and agricultural customers and, to a lesser extent, wholesale distribution to large industrial end users. The fuel oil and refined fuels segment is primarily engaged in the retail distribution of fuel oil, diesel, kerosene, and gasoline to residential and commercial customers. The natural gas and electricity segment is engaged in the marketing of natural gas and electricity to residential and commercial customers in the deregulated energy markets of New York and Pennsylvania.

Other propane companies operating in the propane distribution space include AmeriGas Partners (APU), Ferrellgas Partners (FGP), and NGL Energy Partners (NGL). Propane companies comprise a portion of the Yorkville High Income MLP ETF (YMLP), an ETF that tracks the Solactive High Income Index, which in turn tracks select MLPs as well as the Global X MLP ETF (MLPA).

To learn more about key issues concerning the propane distribution industry, continue reading the next sections in this series.

The Realist Discussions

  • williamftaylor

    Thank you for your very fine analysis. It is greatly appreciated. I am a long term buy and hold SPH investor who reinvests distributions and hope to keep doing so for the next decade.