State of art ethanol facility shows advancing efficiency
POET is a private company that is a leading ethanol producer. The link above discusses their latest plant. I noted some of the facts and figures that points out how the ethanol production industry is still increasing efficiencies. Here are some of the figures I note:
- I calculated the production efficiency at 2.95 gallons of ethanol per bushel of corn. A nice improvement from the current accepted standard of 2.8 gallons per bushel.
- New low heat process uses 10% less energy to produce the ethanol.
- The plant will be outfitted with a regenerative thermal oxidizer that eliminates up to 99.9 percent of air emissions.
- The facility will have 45 employees with a $2 million annual payroll.
As I have recently written, I think the naysayers have written of corn ethanol production too soon. The need to reduce our dependence on foreign oil plus the ingenuity of U.S. companies to improve their process bode well for the future of this business in the U.S.
Tetra Technology give guidance on 2008
Tetra Technology (TTI: 22.13 -1.05 -4.53%) has issued a press release (link above) concerning the companies profitability for 2008. The company gave a per share income range of $1.30 to $1.55. “Analysts” were predicting $1.61 so the shares gave up quite a bit of ground. I read through the press release, and I really wonder why either the company or analysts give estimates and expect them to be close.
TTI is taking write down against insurance claims from 2005 hurricanes. They are also suing the insurance company to recover some or all of the written off money. They are paying a termination fee to a chemical supplier for their fluids division so they can start getting product from a newer, lower cost provider. The Maritech Resources division is writing off expenses towards lower volume wells due to the purchase late in the year of wells that should be more profitable. The company will not even comment on the profitability of the Compressco division, due to pending MLP securitization.
To me, it seems very difficult to forecast whether the write downs will be offset by the growth opportunities toward which the company is trying to set itself up. Also, the company historically has its lowest profit potential in the 1st quarter, with percentages of annual profits increasing as the quarters roll along.
As I read the press release, it seems the management is confident the changes that have been made will enhance profitability. When these profits really start to appear seems to be the big guess. With the stock currently trading at 12 times the low end of the companies estimated income, I do not see a lot of downside. TTI is a component of this site’s 20 Stock Portfolio. I do think it is a good idea to wait for the current overall market to swing upwards, but I am going to keep a close eye on TTI.
Note: I currently do not have a position in TTI.
Penn West Energy Trust and Canetic Resources Trust complete merger
I think this is good news for shareholders, especially longer term. Quote is from the press release:
The combination of Penn West and Canetic has created the largest conventional oil and gas energy trust in North America with an enterprise value of approximately $14 billion, a significant portfolio of unconventional opportunities and a dominant position in light oil in Canada. In addition, the new Penn West has a diversified portfolio of conventional oil and natural gas assets plus significant resource-play potential in the Peace River oil sands of Northern Alberta, CO2 enhanced oil recovery in the Pembina, Swan Hills, Midale and Weyburn light oil pools and coalbed methane producing assets. Penn West is well positioned to create long-term value for Penn West Unitholders through its high-quality, long-life asset base, a strong balance sheet, and an extensive drilling inventory, together with improved access to equity and debt markets resulting from Penn West’s increased size and strength.
PWE is a component of this site’s 20 Stock Portfolio. I personally have a long position in PWE.
VeraSun Energy- follow the crush spread
Despite all of the hype concerning whether corn ethanol is a “good” or “bad” renewable fuel, VeraSun (VSE: 4.21 -0.25 -5.61%) is at this point really just a commodity company. It can sell all of the ethanol it produces, it profits are defined by the commodity price of its raw material; corn, and the commodity price of it’s product; ethanol.
An easy way to keep an eye on the potential profitability of VeraSun and other ethanol producers is to take an occasional look at the ethanol crush spread. The crush spread is the difference between the value of the ethanol (2.8 gallons worth) that can be extracted from a bushel of corn and the cost of the bushel of corn.
From a spread of only 44¢ gross profit on a bushel of corn in early November, the spread climbed to $2.15 by Jan 2. Since then the spread has fallen back to $1.19. VSE stock price peaked at $17.75 on Dec 21 and has fallen since. The fall has been especially steep since the first of the year, although the overall market sentiment has not helped.
I will be watching the ethanol spread through the winter and spring to gauge the future profitability of VeraSun. Corn prices tend to peak in the spring and be lowest around harvest time. I am bullish on ethanol and specifically VSE for several reasons.
- Maintaining a profitable crush spread at these historically high corn prices is a positive sign. Corn will not stay this high as acreage and yield per acre increase.
- Ethanol production will get more efficient. A few years ago the standard was 2.4 gallons per bushel, now it is 2.8, a 16% improvement. Within the year VeraSun will also be extracting corn oil for biodiesel from the same corn for additional revenue.
- The recent narrowing of the crush spread has significantly slowed the building of new ethanol refineries. As demand for ethanol continues to grow, this should push supply/demand back in the favor of the stronger ethanol producers.
- “Everyone” is counting on cellulosic ethanol to replace replace as the number one renewable fuel in the U.S. However, cellulosic ethanol in meaningful quantities is up to a decade away, and corn stalks will be a major source of bio-waste for cellulose. So, if the current producer stay up on their technology, they will generate ethanol from all parts of the corn plant.
A couple of notes on corn farming:
- I grew up in Iowa and Minnesota and I am all for farmers getting good prices for their crops. There are 400,000 farms in America growing corn, most of which are family businesses.
- The cost of the corn in a box of corn flakes is about 5¢ at $4.00 per bushel corn. Rising corn prices are not a major cause factor on rising food prices. What is the profit margin for Kellogg’s on a box of corn flakes?
Note: I currently do not have a position in VSE.
3 Growth Stocks on Sale
On this site I am attempting to highlight stocks of companies that I believe will provide superior returns over the next couple of years. I divide my search and focus on two fairly different areas. I like high yield stocks that can provide strong cash flow with possible growth. And I am looking for growth opportunities where it appears the company can have strong earnings growth with little current notice from Wall Street analysts. With the recent downturn of the overall market, these 3 stocks now really standout as excellent growth on sale.
- KHD Humboldt Wedag International Ltd. (KHD: 26.86 -1.61 -5.66%) Based in Hong Kong and having recently sold off their financial services business, which provide the bulk of revenues, KHD is an industrial plant engineering and equipment supply company. They engineer and build thing like cement plants, primarily in growth areas like India, other Asia, Russia and eastern Europe. The company has growing profits, a two year back order that is growing faster than revenues, and is only followed by one analyst. I think this is an undiscovered gem with 30%+ growth potential. The company has a current market cap of $900 million and a trailing PE of 22.
- Gigamedia Ltd. (GIGM: 10.71 +0.15 +1.42%) An online gaming company with 70% growth rates in Europe and limitless potential in Asia, where they are in the process of bringing several new gaming platforms to market. I see 50% annual growth for years to come. The company is followed by 3 analysts. The stock is extremely volatile, following the current market belief on China, so it could pay to wait for a dip (like this one!). The company has a $970 million market cap and trailing PE of 30.
- Aegean Marine Petroleum Network (ANW: 36.06 +0.01 +0.03%) This company provide fuel and other petroleum products at major ports throughout the world. The company has grown is fleet of double-hulled bunkering tankers from 10 to 20 over the last year with another 25 on order. During 2008 over 100 single hull vessels will have to be taken out of service world wide. Although profits have been flat due to reinvesting in the business, revenues are growing at a 50% rate. The company has a $1.3 billion market cap and a trailing PE of 45. The stock hit $48 back in October and that number will again be part of its future. Four analysts regularly cover the stock.
These all are companies that will continue growing their business even if there is a marked slow down in the U.S. economy. Of course, my writings are for informational purposes, and you should do your own research if you are thinking about investing in any of these companies.
Note: I have a long position in GIGM, ANW and KHD.
Cadillac Fuel-Cell Electric Hybrid
GM has unveiled this fuel cell powered hybrid prototype Cadillac. It uses the same drive train architecture as the Chevy Volt. I like the use of wheel motors to provide all wheel drive. If GM can get some of the advanced hybrid technology to market at a competitive cost and in numbers, the next decade could be very good for the General.
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