Star Gas set to shine?

Benj Gallander and Ben Stadelmann
Wednesday, March 19, 2014

The year 2009 was a time when many investors were either dumping stocks or refusing to add to positions. That moment in time is now viewed as a major opportunity, and those who had the gumption to enlarge their portfolios have, for the most part, experienced tremendous gains.

Had Benj been wiser and had a stronger stomach, the truck would have been backed up and loaded to bursting. So much for the rearview mirror.

One stock acquired at that time was Star Gas Partners, at $3.46. There were numerous reasons to choose this company. The enterprise offers an essential service, because even though consumers may cut spending during hard times, keeping the home or business warm remains a necessity.

This company, based in Connecticut, does just that with its distribution of heating oil and propane along with the installation and repair of equipment. As with some other enterprises in this sector, it also offers a smorgasbord of services, including home security and plumbing.

The company occasionally posts a quarterly loss due to the seasonality of its business, but it is usually profitable on an annual basis. The last few years have all been in the black to the tune of $20 million to $30 million, no small feat considering a string of mild winters — the winter of 2011–12 was the fourth-warmest on record since 1895. The higher temperatures hurt revenues, knocking down profitability.

SGU has been growing, mostly through acquisitions. It closed its latest deal this month, acquiring Griffith Energy Services for $69 million, the first major purchase since 2010. That will add another 50,000 or so accounts, equivalent to about $300 million in revenues.

Star’s six percent dividend appears sustainable, and the balance sheet has remained remarkably stable. Plus, insiders own better than 23 percent, and two majors, Bandera Partners and Kestrel Energy, accumulated quite a chunk of it in 2012, the latter already being a large shareholder. Both shareholders own north of 10 percent of the company.

CEO Steven Goldman continued to add to his position, as recently as last month at $5.60.

In addition, the market cap of $325 million makes this enterprise a relative minnow in a sea of whales. Given the consolidation that is occurring in this arena, it’s entirely plausible that a bigger fish will swallow this company hook, line and sinker.

Star Gas currently trades in the $5.65 range. It would not surprise if it doubles from this level. Once upon a time, it traded north of $25.