6. Ultrapar Participacoes (NYSE:UGP)
TTM Net Income: $506.8 million
5-Year Net Income CAGR: 19.20%
Share Price as of October 9: $3.78
Number of Hedge Fund Holders: 10
Ultrapar Participacoes (NYSE:UGP) is a Brazilian conglomerate operating in the industry segments of energy and logistics infrastructure through its subsidiaries Ipiranga, Ultragaz, and Ultracargo. It operates in various sectors, including fuel distribution, lubricants, pharmaceutical products, and transportation logistics.
The volume of LPG sold in the second quarter was 1% lower year-over-year due to the 2% reduction in the bottled segment, reflecting the continued competitive environment and a milder winter compared to the previous year.
The company’s average stock capacity increased by 12% to 1,067,000 cubic meters year-over-year, primarily due to increased capacity at Opla, Vila do Conde and Rondonopolis terminals. Cubic meters sold grew 19% year-over-year, driven by the start of operations at Opla and Rondonópolis, higher fuel handling at Vila do Conde, and lower spot fuel handling at Santos and Itaqui. Net revenues increased by 2% due to higher cubic meters sold, despite lower spot sales.
Ipiranga’s volumes sold grew 4% year-over-year, with diesel and auto cycle sales increasing by 5% and 3%, respectively. The number of service stations decreased by 5 to 5,876, reflecting stricter contract compliance. Same-store sales for AmPm stores grew 7%.
These segments came together to record a total revenue of $5.80 billion in Q2 2024. However, this number reflected a 3.82% decline from the second quarter in 2023. Despite the decline, Ultrapar Participacoes (NYSE:UGP) had a resilient financial performance, driven by robust growth in all 3 of its core businesses. Its EBITDA increased significantly, leading to higher net income and a strong cash position. The focus on operational efficiency and strategic investments has positioned it well for continued success in the Brazilian market.
Here is what Third Avenue Management Value Fund has to say about Ultrapar Participações S.A. (NYSE:UGP) in its Q1 2022 investor letter:
“Ultrapar is a Brazilian fuel distribution and storage business. Operating under the Ipiranga brand name, Ultrapar is one of three companies with dominant fuel distribution networks in Brazil. With more than 7,000 service stations, Ipiranga holds an approximate 19% market share in Brazilian vehicle fuel distribution and also operates a related convenience store business under the AmPm brand. Ultrapar also operates one of Brazil’s largest Liquefied Petroleum Gas (“LPG”) distribution businesses as well as one of Brazil’s largest bulk liquids storage terminal networks. The Brazilian equity market has, in recent years been a relatively poor performer, particularly as measured in U.S. dollars. Ultrapar is one example of a relatively high quality Brazilian business that is currently available at valuation levels we haven’t seen in some time. Additionally, like many businesses in Brazil, the fuel distribution business has a few country-specific complexities. In the main, we would say that the overall direction of policy in Brazil has made operating the business more straightforward and the separation of several businesses in the energy storage and distribution arena from state-controlled Petrobras is gradually allowing the industry to operate in a more traditional arms-length manner. Further, as it relates to Ultrapar specifically, in recent years, it is generally accepted that Ipiranga has been the least well operated of the big three fuel distributors. This is most glaringly evidenced by routinely inferior fuel distribution margins. Ultrapar also spent years making ill-advised acquisitions in an attempt to diversify, a process which is currently being put into reverse. The disposition of several large but noncore businesses has led to a substantial cash inflow recently, putting Ultrapar on excellent footing to make operational improvements and, potentially, to make strategic additions to its business. This strategy will be executed by a new CEO, to whom Ultrapar’s controlling family has made a considerable financial commitment. We have high-regard for the new CEO, having familiarity with him from his previous career at Cosan S.A., another one of Brazil’s big three fuel distributors. In summary, we think that there is a lot of room for operational improvement as well as general valuation upside at Ultrapar.”
