FPA Queens Road Small Cap Value Fund on UGI Corporation
Thesis
UGI combines a regulated gas utility in Pennsylvania and West Virginia with pipelines and propane-distribution operations in the U.S. and Europe. Problems at AmeriGas previously drove leverage higher and damaged investor confidence. The fund believes management has done an impressive job resetting the business and improving its financial position. It made a significant addition to the holding while the shares were available at approximately eleven times earnings.
“Shares were available at an attractive price of ~11x earnings.”
Key risks
- Debt metrics remain an important consideration after the AmeriGas problems
- The unregulated propane businesses introduce commodity and operating variability
- The turnaround may take longer than expected