Gas Natural: Small Cap Roll-Up Utility Paying Monthly Dividends

Gas Natural (EGAS - $11.68) announced their full-year, 2010 results and growth is still on the table. Although share count increased by 43% to 6.3 million shares, earnings per share before 2009’s positive tax credits were down only slightly at $0.92 a share. Annual dividends paid last year were $0.54 a share, and are paid monthly. Gas Natural provides regulated natural gas service in Montana, Wyoming, Northern Ohio, Western Pennsylvania, Maine, and North Carolina. Gas Natural has increased their customer count to 63,000 through acquiring small, local gas utilities such as its Ohio purchases that added 25,000 customers. Management prefers to add geographic areas where natural gas market penetration is below the national average of over 50%. Natural gas operations generated 95% of 2010 operating net income, with 3% from a gathering and interstate gas pipeline and 2% from natural gas marketing and production. Gas Natural has interest in over 100 wells in the West. Driven by the Ohio acquisition made in Jan 2010, net income before the 2009 tax credit rose by 32%. Organic growth was strongest in the natural gas market of Maine and the propane oriented market in North Carolina, but these are two of their smaller assets. Maine could offer an interesting growth platform as regulated natural gas prices can be set at parity with competitive heating oil. The higher margins potentially available could be used to fund an expansion of service. Maine’s natural gas market penetration for residential heating is less than 2%, creating the opportunity for steady growth. The Northeast has historically been a heating oil market, but natural gas has been making consistent inroads due to cost advantages. In 2010, the company raised $18 million net through secondary offerings. After paying down $8 million in debt associated with the Ohio purchase, the company sits on $13 million in cash. In November, the company announced a refinancing of its $20 million current credit line, converting it to a single note payable in 2017 and adding a bit more to its cash position. This refinance should close shortly. Market capitalization is currently $72 million and EGAS is one of the three smallest publicaly traded natural gas utilities. EGAS carries total liabilities of $64 million, with $25 million classified as long-term debt. After the pending refinance, long term debt will rise to about $44 million, and should be mostly offset by a decrease in short-term liabilities.... Read more

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