Susser Petroleum Partners LP - Another High Yielding Public Offering

Includes: SUN
by: The Value Investor

Susser Petroleum Partners LP (SUSP) made its public debut on Thursday. Shares of the limited partnership focusing on the wholesale distribution of motor fuels ended their first day up 11.8% to $22.91 per share.

The public offering

Susser Petroleum Partners will be a limited partnership, with 49.9% of its shares offered to the general investment public. The partnership will distribute motor fuels to Susser Holding Company (SHC) and other third parties. SHC with its 550 retail convenience stores will be the most important client for the partnership. In 2011, Susser Petroleum LP distributed a total of 1.3 billion gallons of motor fuel, of which roughly 60% is distributed to SHC.

The partnership sold 9.5 million shares for $20.50 a piece. Susser Petroleum raised $195 million in gross proceeds in the offering process. Based on the offer price of $20.50, the firm is valued at $446 million.

The offering is quite a success. Initially the firm and its bankers set an offer price range of $19-$21 per share. In total, the partnership sold 87% of its publicly available shares outstanding. Upon completion of the greenshoe overallotment, 99.9% of the 50% stake in the business will be floating. At Friday's closing price of $23.08, the firm is valued at $504 million. Major banks which brought the company public were Bank of America/Merrill Lynch, Barclays, Wells Fargo, UBS, among others.


The partnership will distributes motor fuels primarily to SHC. The holding company operates over 550 Stripes convenience brand stores. Distribution will take place in Texas, Louisiana, New Mexico and Oklahoma.

The company reported annual revenues of $3.82 billion for 2011, up 42% on the year before. The partnership earned $10.6 million against $9.2 million in 2010. Revenue growth was driven by an increase in the average wholesale selling price from $2.17 per gallon in 2010, to $2.90 in 2011. Selling volumes increased from 1.23 billion to 1.31 billion gallons.

For the first six months of 2012, the company generated revenues of $2.16 billion, up 16% compared to 2011. Net income came in unchanged at $5.4 million. The company will use the net proceeds from the offering to invest in US Treasuries initially, and has an equal amount outstanding as a term loan facility. As such, the partnership operates essentially debt free on a net debt basis.

Based on a rough annual revenue estimate of $4.3 billion for 2012, the market values Susser Petroleum at 0.1 times annual revenues. The partnership could earn around $11 million for the full year, valuing the partnership at 46 times annual earnings.

Investment Thesis

The offering of Susser Petroleum was quite a success. Shares were offered 2.5% above the midpoint of its initial guided price range. Shares ended the week at $23.08, up 12.6% above the offer price. The partnership is expected to pay a quarterly distribution of $0.4375 per share, for an annual dividend yield of 7.6% on the basis of Friday's closing price.

Limited Partnerships are special investment cases. Before investing, investors should consider the tax implications and specific risks to investing in limited partnerships and do not get blinded by the 7.6% dividend yield. Investors furthermore face risks in the fact that 60% of revenues are derived from supplying to the main Susser Holding Company.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.