FPA Queens Road Small Cap Value Fund on Unitil Corporation
Thesis
Unitil is a diversified regulated utility serving Maine, New Hampshire and northern Massachusetts. The fund considers these attractive regulatory jurisdictions and believes management has demonstrated an ability to translate rate-base investment into reported earnings. Unitil is also purchasing gas and water utilities at roughly 1.25 times rate base, providing additional growth. Management expects earnings per share to compound at roughly 5% to 7%, consistent with historical performance. The principal limitation for the fund is the company's small size and limited share liquidity.
“The company believes that it can continue to grow EPS at a 5% - 7% clip, in line with their history.”
Key risks
- Small market capitalization and limited trading liquidity
- Regulatory outcomes could reduce expected returns on rate-base investment
- Acquisitions may not generate expected returns