gas bbq with griddle Ferrellgas: A Balloon Ready To Pop

As interest rates and bond yields are at extremely low levels, many yields-Investors seeking investment are pouring into income-generating assets such as REITs, high-yield bonds and high-dividend stocks.For example, the Financial Times recently reported that yields on junk bonds hit a five-fold record low.At 61% at the end of January, mature investors began shorting asset classes.Not only do investors take greater risks in seeking earnings, but in many cases they raise the value of some securities to outrageous levels.There is no more obvious phenomenon than the shares of Ferrellgas Partners LP (NYSE: FGP.It is shocking that an in-depth study of the FGP shows that not only is the stock price too high, but the "income" that investors receive can only be sustained through increasing debt and permanent issuance of new shares."Yield" is a mirage.Overvalued Stocks, heavy debt burden, unsustainable distributionIt's bad enough to end the dilution, but the situation will get worse.My analysis shows that the company is in a state of long-term organic decline, which has been overshadowed by the acquisition boom of more than 200 companies.All in all, it's hard for me to value the stock more than half the current share price.Company overviewferllgas, L.P.Is a very simple propane distributor with two parts: 1) supply of propane to residential, industrial/commercial and agricultural customers, and 2) operate a propane tank exchange project (mainly for the barbecue market with the brand name "Blue Rhino ".Ferrellgas partnership was established in 1994 with LP's initial public offering, but the company began operating as a propane distributor in Kansas in 1939.Source: bluerhino.com;ferrellgas.com.FGP is the largest 2nd propane distributor in the United States.S.(Propane behind the suburbs), operating in all 50 states, but concentrated in the Midwest, Southeast, Southwest and Northwest regions.The company's website states the "strategy" of its business as follows: The following is the FGP's stock price performance chart since its 1994 IPO.As you can see, stocks have been missing for 19 years despite cyclical panic and excitement.FGP is already on the market, and the current trading price is within the range of $19, which is 10% lower than the IPO price of 1994.Issue history at the same time as the IPO, FGP launched the issue at $0.$50 or $2 per quarter.00 annualized.After 19 years, the allocation is still $0.50 per quarter.The fact that a company simply cannot improve its distribution, let alone keep up with inflation, should be a dangerous signal for investors.Using the inflation calculator provided by the Bureau of Labor Statistics, the actual distribution decreased by 1/3 ($2 ).00 today is $1.US $1994 ).A $2.00, $19.The stock of 00 looks attractive in this environment, providing investors with 10 "earnings ".5%.However, doubleThe digital rate of return should be another dangerous sign of a problem.There is.The propane used in residential buildings has declined in structure.As a natural gas liquid, the price of propane is closely related to the price of oil.As a result, pushing gas prices to a very low level of shale gas-rich mines is of little value to struggling propane customers.To illustrate how high the cost of propane is compared to natural gas, the United StatesS.The Energy Information Administration (EIA) maintains an updated comparison calculator for heating fuels.Based on the data for each million BTU in March 5, 2013, the cost breakdown is as follows: as can be seen from the above data (including delivery costs, etc ).) Propane is one of the most expensive ways to heat a house.Not surprisingly, the use of propane is often limited to rural areas with fewer alternative products.With the continuous construction of natural gas infrastructure, alternatives such as heat pumps and geothermal heat are becoming more and more common, and propane usage in the FGP core market is expected to decline for a long time.EIA data confirmed a gradual decline in propane use among residential customers.Environmental impact assessment paradeThe term energy outlook shows the number of households using propane for primary heating, by region, and how things have changed over time: you can see in the table above, propane heating business in a long-term stateAt a rate of about 2% per year.Given the huge cost disadvantage of propane heat, there is little reason to think that this trend will reverse.There is also evidence that households are saving more energy and less energy for heating, so this rate of decline may be underestimated.It is worth noting that retail sales to end customers account for the vast majority of FGP Gross profit (77% in fiscal 2012 ).Oddly enough, although this is a unique business, the company has not released the BBQ tank swap indicator.Instead, FGP integrates a catch in BBQ tank exchange customers and bulk propane sold to wholesale customersAll items called "wholesale"Sales to dealersTherefore, part of the wholesale income will be linked to heating.There is very little data on the demand for propane BBQ (existing data divide gas and propane grill into single category "Gas Grill"), however, the city center Gas BBQ connection is becoming more and more popular, this leads me to the conclusion that this is not a growing business either.To sum up, I find that EIA data is a reasonable approximation of the organic growth rate of the FGP addressable marketKeeping prices and market share unchanged, I estimate that the top line of the FGP is about 2% organic erosion per year.In the propane supply industry, there are few competing moat to dig.It is a brutal commodity business with fierce price competition and lowest customer loyalty.In addition, economies of scale offer only marginal opportunities-The goods themselves, Labor (delivery), trucks, delivery fuel and fuel tanks are the main cost inputs.Scale doesn't matter if there is enough local customer density (so even small mom and pop distributors are still competitive ).In a bit of a background, it's time to turn our attention to the FGP itself.In order to generate the following data and charts, I have experienced 10-K filings -Every time since FGP's 1994 IPOThe chart below shows the income, gross profit, operating income (excluding stock compensation) and distribution paid to the unit holder over the past 19 years: you can see in the chart above, unless there has been some weakness recently (partly due to the warm 2011/2012 winter season, the gross profit of the company (which is a more stable indicator due to fluctuations in propane prices )-It can be counted as "net income"), and operating income has increased steadily.The chart shows a steady increase in the total score, but consideringUnit allocation of $2.00 has not increased since 1994, and 100% of the increase in issuance is due to the increase in tradable shares.Only when you look at the documents and cash flow statements of the SEC from below the operating income line, the real situation of Ferrellgas will appear.Before we discuss the disease, I put forward some symptoms: I find it strange that, although business income, gross profit margin and operating income seem to be growing, the company is unable to deliver one nickel in this growth in the form of distribution growth.In inflation-The adjusted allocation of terms actually fell by 1/3.So while the company has never been able to increase the size of the issue, what has changed in the number of shares?It has swelled: From the point of view of debt, we can see that the debt burden and interest costs of FGP have also increased significantly: At this point, we have determined: At this point, the company obviously cannot have the opportunity to support its level of distribution.If the business is stable, there is no reason to issue shares or take on more debt.If the reason for the issuance of shares and the increase in debt is new growth opportunities, then they will be able to increase their distribution in about 19 years.If the reason for issuing the stock and taking the debt is not to expand the distribution (experience as described above), then my conclusion is that it does so only to maintain the distribution.In the next section, I will show that the distribution of FGP is far beyond what the business can support, so that it is almost entirely dependent on the company's ability to acquire more and more businesses and issue more and more stocks, take on more and more debt.FGP tells us that acquisition is at the heart of its "strategy."They are not joking.According to the company's latest 10-FGP has acquired more than 190 companies since 1986.In the past 25 years, there has been an average acquisition every seven weeks.The company's disclosure makes it impossible to determine the financial results in the event of acquisition and non-acquisition --No "same-Store sales provided "or similar indicators.I noticed that the word "acquisition" in FGP's 10-K, and the number of occurrences of the word "organic" is zero.Fortunately, as a public company, we can go back and see how much the company has spent on acquisitions over the past 19 years.Here is a chart that cumulatively shows how much FGP has spent on acquisitions in the form of cash, stock issuance, and debt assumptions: $1 invested.The number of 5 billion is roughly equivalent to the company's current market value.Learn how much FGP has spent on acquisitions and what has happened to the customer base?When I first went through these files, I expected to find at least a customer base that was stable to moderate growth (which would cost about $1 for hundreds of acquisitions ).5B will stabilize the customer base at least ).My findings are amazing: Interestingly, despite the buying frenzy, the business is basically the same size as it was 12 years ago (note that the number of propane can fluctuate every year due to weather ).Interestingly, from what I have seen, the company has been in the last 10-Q: The disclosure of the past looks like this (from the previous 10-Q: "It can be seen that" about 1 million "has now disappeared.I'm assuming that FGP stretches the word "about" for as long as possible, and that number may be below 950,000.The gross profit margin of the company can show further evidence of the deterioration of the company and changes in the product structure: with all the moving parts, I think narrowing down and looking at the business at 19-The history of the year, the expenses used to generate cash flow (capital expenditure acquisition), the expenses paid in the form of distribution, and how to fill any gaps.This involves every 10-This is the only way to get a full picture since 1994.Due to years of disclosure and changes in accounting rules, I have to make certain (I believe it is minor) adjustments, but I believe my current figures are accurate.I break down the financial results into the following parts: I arrange the components above as follows: on the basis above, here's how FGP's "free" cash flow to stocks and issues has emerged over the past 19 years: the chart above may look shocking --The company's ability to generate cash is far less than the amount it pays in its distribution, which in part explains why the number of shares and debt levels have all risen so much.However, it seems to me that things are much worse than the data shown above.In the above analysis, I didn't even consider the company's spending on a steady stream of acquisitions!In retrospect, the company has already spent about $1.5 billion (about the current market value) has bought companies since the 1994 IPO.When we include acquisition costs and stock compensation costs in our formula above, the funding gap goes from outrageous to ridiculous: In (appropriate, in my opinion) assuming that the acquisition of the FGP requires maintenance of the business (a form of maintenance of capital expenditure), the results of the analysis are as follows (warning: you may want to sit down before looking at this chart ): the scale on the chart above is important.Note that the green line indicates that the adjusted free cash flow is zero.When considering acquisition costs, it is clear that FGP does not generate free cash flow at all.I included stock compensation in the calculation above, as this is the real economic wealth transfer from shareholders to employees (average about $10 per year for the last 5 years ).Critics of the above analysis may (to some extent effective) point out that acquisitions are not equivalent to costs because they will be in-acquisition.My answer is that if you ignore the acquisition cost, then you have to analyze it based on the real organic attrition rate in the business.From this point of view, I think it would be helpful to break down the above factors cumulatively since the 1994 s.Here are the results of the analysis: it might be helpful to have a cup of coffee, sit down and stare at the analysis above for a while.Where to begin?We see that FGP is a listed company throughout the period, and when one of the factors in the acquisition cost (the note above does not include more than $100 in stock compensation), it actually generates negative free cash flow.Still, the company managed to pay $1.The distribution of this period was 8 billion.How does it do this?The answer above is highlighted in yellow.This gap is mainly filled by issuing more than $ 1B of shares to the public market, taking on over $0.4 billion of acquisition debt and issuing $0.235 billion of shares to the acquisition target.I don't want to use P-I don't think there's anything illegal, fraudulent or suspicious here, but using Wikipedia's definition of Ponzi scams, removing the word "fraud" gives us: one should ask the question: What happens if FGP closes the capital market? It is unable to make further acquisitions (E.G.g.The buyer is not willing to accept the stock, the company can not bear more debt )?Why is the company doing this?Why would it endanger the long term?In order to maintain unrealistic and unsustainable earnings, the company's long-term health?In my opinion, there are two reasons: the employee stock ownership trust is an interesting structure --A pool of ownership, created in 1998, holds shares for the benefit of employees.Initially, "ESOT" bought a large chunk of stock from James Ferrer.It is interesting to note that the FGP document refers to ESOT as a "leveraged" employee shareholding trust.I can't find the financial statements of the trust itself, but please note that the initial 1998 disclosure is: 10-K still calls ESOT "leveraged" so I guess there is still outstanding debt for this huge group of employeesowned shares.Currently receiving an annual distribution of $44 million, a large number of employees with stocks "worth" more than $0.4 billion may be considered human resources nightmares --in-Distribution is reduced or eliminated, waiting.Leverage on the pool (if it is still a lever) can be toxic.From reading the documents, it seems that employees whose FGP shares are "allocated" to ESOT cannot be traded or sold by employeesEffectively ensure that nearly 22 million of the company's 79 million shares will never go public, regardless of how the individual "owner" feels.FGP marketed the employee stock ownership plan as a core benefit for employees and even positioned it as "retirement savings": Source: I think I have given a good overview of the FGP and how it got to where it is today.So now let's take a look at the company.From the table above, we can see the enterprise value of FGP (long market value-term debt -Working capital is about $2.7 Billion.Given the flood of acquisitions, coupled with the annual weather fluctuations, it is difficult to triangulate the FGP $2 standardized operating income/EBITDA figures.7 billion price tag.The most flattering approach is to ignore the dilution and increase of debt, in fact, EBITDA has been supported by the acquisition and takes the average of the past few years as a starting point: of course, we know that this figure is exaggerated by the $86 million acquisition that FGP completed during this period, but I am in a good mood and will ignore this.I will also be generous and will not punish the valuation for the warm 2011/2012 Winter (using the full 5-Annual Average) on the $218 "standardized" EBITDA number.5 million, FGP is traded in multiples of 12.3X.Of this $0.218 billion "standardized" figure, interest and AR factoring cost about $100 million, and non-interest and AR factoring cost another $40.Acquisition of capital expenditure.This will leave about $78 million to cover distribution payments that currently exceed $0.156 billion.How reasonable these 12 are.Manually standardize 3X multiples on EBITDA maps?If we assume that there is no erosion in the business (0% growth), there is no additional cost or dilution to plug the loophole in future acquisitions, and the capital cost is very conservative, at 7.7% (I noticed that the YTW of the key for FGP is 7.7% -The cost of the stock will definitely be higher, but we are in a good mood, aren't we?) We get: using a similar approach, but taking into account the company's current capital structure and interest costs, we can take a similar approach based on the above assumptions (raising the cost of equity to 8%-On bond w at 7.7%): even in this optimistic scenario (without further dilution or stability of acquisition costs), the FGP is overvalued by 27-59%.From the above analysis, we have a good feeling that both the industry and the company are in a long-term stateLong-term decline.For simplicity, let's use a very mild organic drop rate of 3% of the annual cash flow.Taking into account the industry decline of about 2% and the operational leverage (operating expenses and G & a running on variable gears of about 70%), it doesn't seem to have much impact.Do the same for the rate of decline we get: in these more realistic cases, we get a fair value of $7 per share.50 to $9.The range of 00 means that the stock is overvalued by about 120% to 170%.The debt burden of FGP is very high.The long-Regular debt alone is $1.Even with our generous estimate of standardized EBITDA, 1 billion is about 5 times.Moody's junk rating on FGP has not lost the factLast year's debt rating was B1 and the outlook was negative.In fact, I think it would be good to trade in EV/EBITDA multiples of EV (Intel trades at 4) in the case of moderate but sustained long-term decline.6X !).To confirm this, there is evidence in the propane industry that at 5-6X EBITDA is unreasonable --Look here and here, please.If FGP trades with EV/EBITDA, the equity value is about $2.60 per share.As I stated in my opening remarks, I am unable to make any assumptions for a combination of rationale that values the FGP to anywhere close to the current transaction.I don't think investors are aware of this complex situation at all.Casual reading of the stock message board sums up long/long term arguments: very little consideration is given to the company's ability to continue to pay for distribution, its long term challenger, its debt burden, or the acquisition treadmill that sucks out cash, increased debt and diluted shareholders.In my opinion, a "normal" company cut distribution to a more sustainable level a long time ago (E.G.g.a 60-Down 75% from today's level ).However, given the dependence of business models on acquisitions and the continued access to capital markets, and the high ownership of employees and retirees imprisoned in potential leveraged trusts (the distribution of $44 million per year is clear, why they haven't done so yet.A review of the company's bond contracts shows that they do not have room for maneuver to add more debt.Current cooler (.Last year) winter will help them, but it seems to me that the longer they delay, the worse the final liquidation will be.Economic growth in the United StatesS.In the medium term, the propane export capacity may also increase the margin pressure.Cracks began to appear.Last year, the company began cutting jobs at its headquarters.The company has also just paid a large class action settlement in response to allegations that the company began filling propane tanks to its competitors and setting prices: recently, the company disclosed: there is also a pending class action filed in the United States.S.The Kansas District Court charged Ferrellgas with violating the consumer protection law, setting the price and cost of the customer.Simulation in Superior PlusA propane distributor in CanadaAfter the dividend was reduced, the stock value of Superior lost about 60%.Buyers and holders of the FGP may want to revisit their "they always give me $2.Before the investment paper, their portfolio risk was left out.I'm short FGP.This article was written by myself and expressed my views.I have not received compensation (except for Seeking Alpha ).I have no business relationship with any stock company mentioned in this article.Supplementary disclosure: This article only reflects my personal views.I have a short position in the FGP stock.As far as I know, all the data and calculations presented are accurate but have not been reviewed, checked, proofread or independently verified.This article should not be used for any purpose other than entertainment.I welcome comments and corrections.