Chris Paryse on Ferrellgas's big conversion $FGPR

From Yet Another Value Podcast

Executive Summary

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12 quotes

Extremely high leverage (approx. 6.8x) makes the equity highly volatile and risky.
The business's performance is heavily dependent on weather, particularly the severity of winters.
The company's history of a value-destructive acquisition that led to its 2020 bankruptcy raises concerns about future capital allocation discipline.
The expensive preferred stock must be redeemed at a high IRR, which will consume significant future cash flow.

The recent Class B unit conversion simplifies the capital structure and is a major de-risking event.
A potential relisting on the NASDAQ in mid-2024 could significantly improve liquidity and attract new investors.
Reinstatement of a dividend, potentially in early 2025, would provide a clear catalyst for a stock re-rating.
Long-term value creation through a roll-up strategy in the highly fragmented propane distribution industry.

Ferrellgas's Blue Rhino brand has over 50% market share in the propane tank exchange business.

In March 2024, Ferrellgas filed an 8-K announcing that its Class B units were being converted and delisted.

Chris Paryse expects Ferrellgas to rebuild cash over the next 12 months and reinstitute a dividend around March 2025.

Ferrellgas filed for bankruptcy in 2020 and emerged in 2021 after a disastrous and highly-levered acquisition of oil storage businesses.

Ferrellgas's 1.3 million Class B units converted into 6.5 million Class A units, representing a 5x conversion ratio.

Chris Paryse estimates that PGM will own approximately 50% of Ferrellgas following the Class B unit conversion.

Ferrellgas currently generates between $330 million and $340 million in annual EBITDA.

Ferrellgas's preferred stock contains a covenant that prevents dividend payments to the holding company if leverage exceeds 7.0 times.

Ferrellgas's preferred stock must be redeemed at a price that provides a 12.25% IRR to its holders.

Chris Paryse predicts Ferrellgas will relist on a major exchange, likely the NASDAQ, by summer 2024.

Chris Paryse believes Ferrellgas's long-term strategy involves acquiring smaller propane players to consolidate the fragmented industry.

Chris Paryse believes Ferrellgas's M&A goal is to acquire companies representing $50 million to $100 million of EBITDA over the next three years.

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