Ultrapar: An energy bet on Brazil
This Latin American conglomerate has seen 21 consecutive quarters of growth.
By Paul Goodwin, Cabot China & Emerging Markets Report
Ultrapar Participacoes SA (UGP) is a Brazilian conglomerate with deep roots in the country's energy industry.
It is the second largest fuel distributor in Brazil, and the largest LPG distributor, ethylene oxide producer and liquid bulk storage provider. It is thus positioned to benefit from the growth of Brazil and Latin America in general, and growing automobile ownership in particular.
The company's fuel distribution segment includes Ipiranga, the largest private fuel distributor in Brazil, which sells diesel, gasoline, natural gas for vehicles, fuel oil, kerosene and lubricants through its network of nearly 6,000 service stations.
Ipiranga took over Chevron's Texaco Brazilian operations in 2009 and acquired DNP, a northern Brazil fuel distributor in 2010.
Also in the fuel distribution area, Ultrapar's Ultragaz unit delivers LPG in bottles to more than 10 million homes for cooking and heating, and to over 40,000 bulk customers.
Ultrapar's Oxiteno division is Brazil's largest supplier of specialty chemicals like ethylene oxide and fatty alcohols. The company's expansion plans have included acquisitions in Mexico and Venezuela and the opening of commercial ofﬁces in many other Latin American countries.
The third division of Ultrapar is Ultracargo, a leader in liquid bulk storage for chemicals, corrosives, fuels and vegetable oil. Ultracargo's storage sites are strategically located in Brazilian ports and at railroad junctions.
Ipiranga provides more than 90% of Ultrapar's revenue, and the company's other divisions really represent ways to monetize its storage, distribution and byproducts businesses.
The company's expansion has come from a combination of organic growth and strategic acquisitions, leading to a string of positive annual earnings stretching back at least to 1997 and 21 consecutive quarters of EBITDA growth.
UGP made a strong run from its recession low of $3 a share in late 2008 to $19 in April 2011. But the stock traded under that high for the rest of 2011, building a powerful base for further gains.
The present rally began in January, and lifted the stock price to $23, with a couple of mild corrections along the way. The stock features a substantial 2.6% forward annual dividend yield.
With its strong network of Ipiranga locations providing both excellent supplementary retail opportunities and cross-selling opportunities for LPG, the company's strong brand proﬁle and orderly expansion plans make for an attractive proposition. We rate the stock a buy.
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The company has made at least 4 acquisitions in the space, and few people have paid any attention.
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