I know these Qs are all asking for opinions, so appreicate your input on the following:
At what price does SPB look attractive for income and limited capital risk?
What % does Brookfield own of SPB and at what point do you think this gets cheap enough for them to take private?
What seems to be the problem with mgmt getting this business to achieve profitable growth, and create shareholder value?
Seems to me propane distribution and use business has many years of runway left in our lifetimes.
Appreciate your insights.
We think the current valuation looks reasonable to us. SPB’s EV/EBITDA is around 8.0x, at the lower end of historical averages. SPB’s debt level is 3.9x, quite high but on par with industry averages and gradually declining. We don’t think the dividend would be at risk for now (although things could change in the future). According to the Annual Information Circular, Brookfield owns 260,000 Preferred shares, each preferred is exchangeable to 115.4 common shares, Brookfield also owns 6,696,500 common shares. Assuming the exchange, Brookfield would own 13.2% of SPB, there is a possibility for a privatization deal, but the probability is uncertain. The business is tough to consistently create shareholder value given the cyclicality, capital intensity and high leverage level. That being said, despite tough execution, the business would have tremendous runway in terms of staying power. Brookfield likes 'recurring' revenue and that is certainly an attractive here. We think $8.50 would be an attractive entry point, but with its small size and leverage investors should consider it a higher-risk stock overall.