Superior Plus, the unassuming propane distributor, might not be the first name that pops into your head when you think of Wall Street darlings. Nestled among the high-flying tech giants and flashy consumer brands, it seems almost mundane. But a close reading of their recent Q1 2024 earnings transcript reveals a quiet revolution brewing, one with the potential to transform the company into an investor's dream.

While analysts have focused on the impressive 15% EBITDA growth and the continued success of the Certarus acquisition, a subtler, yet potentially more impactful, shift is taking place within the company's core propane business. Superior Plus is undergoing a fundamental change in its operating philosophy, one that could unlock significant value and drive sustained organic growth.

For years, Superior Plus has relied on mergers and acquisitions to fuel its growth. This strategy, while successful in building a massive footprint, has left the company with a patchwork of disparate businesses, each operating with its own unique (and often inefficient) practices. But now, Superior is embarking on a new path, one focused on operational excellence and organic customer growth.

This shift is evident in Allan MacDonald's, CEO of Superior Plus, comments during the Q1 earnings call. He speaks passionately about "revolution, not evolution" within the propane business unit, emphasizing a new operating model centered on acquiring customers organically, reducing customer churn, and optimizing delivery costs – all with lower capital investment.

This strategic pivot is not just empty rhetoric. The Q1 results offer tangible evidence of the strategy's early success. The U.S. propane division, facing the significant headwinds of a warm winter, still managed to post a 1% EBITDA increase year-over-year. This resilience, in the face of challenging weather, is a testament to the early gains from Superior's operational focus.

What's Driving This Success?

Superior is leveraging data and market insights to refine its pricing strategies, moving away from a simple price-per-gallon model towards a more nuanced approach that accounts for customer volume and profitability. This shift is particularly evident in their targeting of seasonal customers, such as vacation homeowners, with fee-based charges for tank rentals, delivery, and monitoring services.

But Superior's operational revolution goes beyond pricing. The company is actively reducing headcount through attrition, streamlining delivery routes, and embracing technology to optimize operations. MacDonald points to a significant reduction in miles driven and drivers employed in Q1, despite maintaining a near-identical number of deliveries compared to the previous year.

"Reference: Superior Plus Corp. (SUUIF) Q1 2024 Earnings Call Transcript"

This relentless focus on operational efficiency is transforming Superior from a weather-dependent, variable revenue business into a stable, predictable earnings machine. As MacDonald astutely notes, the company is aiming to build a "fixed revenue business" by leveraging its fixed-cost base, reducing the traditional volatility associated with propane distribution.

Certarus: A Growth Engine

Superior Plus's acquisition of Certarus in 2023 has proven to be a shrewd move. Certarus, a leading provider of mobile storage units (MSUs) for compressed natural gas (CNG), renewable natural gas (RNG), and hydrogen, has consistently delivered strong financial performance, with EBITDA growth of 9% in Q1 2024.

The company's fleet of MSUs has continued to expand, reaching 753 units at the end of Q1 2024. This growth, coupled with Certarus's expansion into new geographies and industries, positions the company for continued success in the years to come.

Charting the Growth of Certarus's MSU Fleet

A Compelling Investment Opportunity

This shift towards a recurring revenue model, coupled with the company's commitment to deleveraging, could make Superior Plus a highly attractive investment for those seeking steady, long-term returns. While a leverage ratio of 3.8 times might not scream "investment grade" just yet, the company's clear commitment to reaching a 3.0 times ratio within the next few years, primarily through organic EBITDA growth, should inspire confidence in their long-term financial stability.

The market hasn't fully grasped the significance of this quiet revolution. Superior Plus is still largely viewed as a legacy propane company, burdened by debt and exposed to weather-related volatility. But the seeds of transformation have been planted.

The Potential Play

Superior Plus might not be a glamorous Wall Street darling, but it's quietly laying the groundwork for sustained success. For savvy investors seeking undervalued opportunities, this quiet revolution might just be the sound of opportunity knocking.

"Fun Fact: Propane is a versatile fuel used for everything from heating homes and powering appliances to fueling vehicles and agricultural equipment. In fact, propane-powered forklifts are commonly used in warehouses and distribution centers due to their low emissions and long run times."