UGI Analysis

In the previous article we looked at UGI business model. We also looked at UGI and noted its strenghts in another article. Currently we will look at UGI based on Q2 2006 earnings. The previous two articles provide an overview of the business and the growth in gross margins and potential growth rate.

In this segment, we will look at UGI's second quarter earnings to see if the analysis done before holds true.

From the UGI press release,

During the 2006 six-month period, temperatures within each of our domestic business units' service territories were significantly warmer than normal. Net income in the 2006 six-month period declined $34.0 million compared to the 2005 six-month period. As previously reported, the 2005 six-month period net income benefited from (1) $14.9 million (equal to $0.14 per diluted share) resulting from the resolution of certain of Antargaz' non-income tax contingencies and (2) Antargaz' unusually high LPG margins per gallon. In addition, the decrease in net income during the 2006 six-month period for International Propane reflects a decline of approximately $6 million due to the effect of a stronger dollar versus the euro.

So, the EPS was lower in the first six months of this year compared to the same period last year. The earnings declined by approximately 12% for the first three months and by almost 18% in the first six months of this year.

However, there were a couple of positive notes about the company - it is expanding its business that may allow it to be less seasonal with regard to its earnings.

In January 2006, we announced that we signed a definitive agreement to acquire the natural gas utility assets of PG Energy from Southern Union Company for approximately $580 million in cash, subject to certain adjustments. The acquisition, which is subject to PUC approval, is expected to close during our fourth fiscal quarter ending September 30, 2006. We expect to fund the acquisition with existing cash and proceeds from the issuance of long-term debt. In February 2006, Flaga entered into a joint venture with a subsidiary of Progas GmbH & Co KG expanding our international presence in central and eastern Europe.

The company has a book value of $9.5/share. Taking the book value out, the company has a forward P/E of 8 for FY07. Not taking the book value out, the forward P/E is 13. The debt ratio has also declined year over year from about 72.5% ( debt to capitalization ratio ) in 2001 to 59% in 2005. At the same time the shareholders equity has increased. The analysis done before continues to hold true. The company has limited downside and more of an upside in the coming year.