The Facts (as of November 5, 2010)
Share price: $10.66. Book value per share: $5.02. Market cap: $1,138 million (large). Dividend: $0.135 per month or $1.62 per year. Current yield: 15.2%. P/E: 266x. Debt/equity ratio: 200% . Current payout ratio: 4050%.
Superior consists of three primary operating businesses: Energy Services includes the distribution of propane and distillates and related fixed-price energy services; Specialty Chemicals includes the manufacture and sale of specialty chemicals; and Construction Products Distribution includes the distribution of specialty construction products.
Superior Plus Corp combined with Superior Plus Income Fund in early 2009. Since then, the share has fluctuated between about $9.50 and $14.50. The share price is currently at its lowest point in over a year. At the same time, debt is increasing while earnings and dividends are decreasing. The company does not appear to be in a stable financial situation. Because of the debt, there is a chance that the company could run into real trouble.
It’s really hard to find a benefit to owning this company. The yield is really high, but doesn’t appear sustainable. Management is apparently capable, but they appear to be facing a real challenge. If there’s a very cold winter, as some are predicting, there may be a lot of demand for propane supply and heating oil. Construction requiring propane heating and building materials supplied by Superior Plus may pick up as the economy continues to recover.
This is a company with a lot of debt and currently weak earnings. They diversified into a number of seemingly unrelated businesses, which may produce more challenges than synergies. There is no guarantee of the income and the dividends have been reduced over the last three years.
This is much too risky for me. It is difficult to see how this company can improve their financial stability or profit in a dependable manner. No matter how talented management is, there is a high likelihood of unforeseen circumstances that could derail the best plans. And I have no appetite for betting on the weather.