Fuel Up at CrossAmerica

07/17/2020 5:00 am EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

CrossAmerica Partners LP (CAPL) — the former Lehigh Gas Partners — is a good value proposition, suggests Roger Conrad, a leading expert on resources and utilities and contributing editor to Energy & Income Advisor

Its primary business is owning and leasing real estate used in retail distribution of fuels. That’s principally 1,100 gas stations franchised under major brands like ExxonMobil (XOM). The company also distributes fuel to 1,700 locations in 33 states.

Before COVID-19 fallout hit this spring, CrossAmerica was successfully growing cash flows with acquisitions, closing on 550 sites in Q1 alone. That was key to an 18 percent lift in EBITDA, which in turn improved the distribution coverage ratio to a rolling 12-months 1.19 times from up from 1.03 times a year ago.

Several more transactions are on target for completion by the end of this year, including what’s left of the Circle K asset swap first announced in late 2018. That should help offset any shortfall from reduced volumes at the wholesale business, along with improved margins from cost cutting.

CrossAmerica pulled its 2020 full year guidance in early May, and is not likely to provide a reset until the Q2 results and guidance call expected in early August.

But with driving activity apparently picking up across the US in recent weeks, there’s good reason to expect another steady result. That in turn would back up the distribution, which should be declared in mid-July. The partnership has no maturing debt until 2024, when the principal credit line will be rolled over.

And despite the recent brisk pace of M&A, it remains a likely takeover target, with 48%-owner Joseph Topper a probable suitor for the publicly owned shares. Topper has been a major buyer this year, as insiders overall have increased holding by 22%.

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