UGI Corp (NYSE:UGI)

Low yield suggests it's overpriced.

The iPIG portfolio is making another trek into the utilities business with an intent to purchase shares of UGI Corp (NYSE: UGI). Outside of Pennsylvania (and a small sliver or Maryland), UGI is probably best known as the company that owns the general partner of AmeriGas (NYSE: APU), America's largest retail propane marketer.

It's also fairly large in LPG (liquefied propane gas) internationally, particularly in France, Belgium, the Netherlands, and Luxembourg, and the company also boasts Chinese, Eastern/Central Europe, and UK-based LPG operations.

Domestically, it also has utility operations, including distribution, utility, and power generation in Pennsylvania -- mostly natural gas. It also has a small ownership stake in a coal fired power plant and is into some solar and landfill gas recovery power generation, as well.

Valuation: I estimate fair value for the company of around $7.0 billion, making its recent market price of around $6.7 billion in the neighborhood of fairly priced, but still in the area where I'd be willing to buy. Risks to that model include sustained low energy prices, which could trigger a price war in those parts of its business that are subject to competition, somewhat offset by the company's prime position to be transporting some of that energy in the form of gas from the Marcellus shale.

Balance Sheet: It looks reasonable, with about a 1:1 debt to equity ratio, $400 million+ in cash and equivalents, and a current ratio of around 1.2. It doesn't look like the company should have any substantial troubles rolling over its debt in the near future, though it does have a decent chunk due in 2016.

Dividend: Sufficiently covered with a 40% payout ratio and a 27 year history of dividend growth.

Diversification: UGI looks like something of a mix between the old NV Energy shares that the iPIG portfolio lost when Warren Buffett's Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) bought it out and Kinder Morgan (NYSE: KMI), the pipeline giant currently held in the iPIG portfolio. UGI looks a little less complicated than Kinder Morgan, though, and it's a little easier to peg UGI as decently priced compared to its intrinsic value. From a diversification perspective, the overlap with Kinder Morgan from a energy transport perspective means it's not ideal, but when put in perspective in the balancing act of investing ( http://www.fool.com/investing/general/2012/12/31/the-great-i... ), it looks like it can still fit.

Next Steps: Once the Fool's disclosure policy allows (the window opens Wednesday), I intend to buy about $2,500 worth of UGI's shares for the iPIG portfolio, as long as they're trading below $40 each. If they're not trading below that price, I expect to make it a limit order good through about the end of January and then re-evaluate once the next round of earnings come through.

Best regards,
-Chuck
Inside Value Home Fool
Disclosure: I own shares of Kinder Morgan