New Energy Finance - NEX - Week in Review
If this is Tuesday, I must be writing about renewable energy. Time for my weekly update on last week’s results for the WilderHill New Energy Global Innovation Index of renewable energy companies-NEX. For investors, the NEX is tracked by the ETF: PowerShares Global Clean Energy Fund (PBD: 29.29 +0.43 +1.49%). The NEX offers a broad, global snapshot of renewable and clean energy companies.
For last week the NEX gained 2%, outgaining the NASDAQ at a +1% and the S&P500 which was off -0.3%. Solar energy came in as the top sector for the index, gaining 4%. Five of the 7 sectors in the index were positive. The only two negatives were renewable-other (mini-hydro and geothermal) and hydrogen/fuel cells losing 0.9% and 0.3%, respectively.
Here are the winners and losers from the index for last week:
NEX top gainers since 06/05/08
Energy Conversion Devices ENER + 54.7%
Capstone Turbine CPST + 16.8%
Centrotec Sustainable CEV + 14.0%
American Superconductor AMSC + 13.2%
Brasil Ecodiesel Industria e Comercio de Bioc ECOD3 + 12.2%
NEX top losers since 06/05/08
Aventine Renewable Energy Holdings AVR - 12.2%
Cree CREE - 7.0%
Conergy CGY - 6.5%
Byd Co 1211 - 6.4%
Verenium VRNM - 6.0%
Note: I currently do not have a position in any security listed.
VeraSun Energy beats the odds
VeraSun Energy (VSE: 6.19 -0.01 -0.16%) has reported 1st quarter earnings and the results could be considered very good, given the current sentiment for ethanol producers. VSE increased quarterly revenue by 257%, primarily by increasing the volume of ethanol sold by 223%. VeraSun sold 191.7 million gallons of ethanol, including 49.5 million gallons they purchased from other producers to resell to their customers. VeraSun’s own production increased 138.6% from the 1st quarter of 2007.
The first thing I notice from this information is that there seems to be a very strong demand for ethanol! Who would have guessed that from recent news on ethanol.
Corn costs increased from $1.43 per manufactured gallon of ethanol to $1.68. This is pretty in line with the additional 20¢ per gallon the company realized on the average sale of product to $2.33. This reinforces my contention that corn and ethanol prices are now inelastically tied. Corn and ethanol prices will rise and fall together, keeping the crush spread fairly constant. For an efficiently run company like VeraSun you can see that margin is about 50¢ to 60¢ per gallon of ethanol. Less efficient producers will have much tighter spreads and will only be profitable by efficiency gains.
On to profitability: For the first time in quite a while, VSE showed a increase in profits for YoY quarters and consecutive quarters. The company earned 8¢ per share for Q1,2008 vs. a small loss of less than 1¢ for the same quarter of 2007 and a 4¢ profit in Q4 of 2007. Not great profitability but a turn in the right direction.
Going forward from here, the shorter term (2-3 quarters), looks like tight profitability, but definitely in the plus column. Further out, VSE will increase capacity a further 50% by the end of 2008 and overall capacity growth will level off at about the same time. Ethanol blending in gasoline will continue to grow for both economic and environmental reasons. One thing many pundits do not realize is that ethanol companies are able to sell everything they produce and that trend will not change. VeraSun Energy as the largest, leanest producer of ethanol will see profitability increase over the next couple of years.
Note: I currently have a long position in VSE.
Filed Under Growth, Renewable EnergyStock Review: Aircastle Ltd.
Aircastle Ltd. (AYR: 16.00 -0.30 -1.84%) caught my eye in March when the company slashed it’s quarterly dividend from 70¢ per share to 25¢. This was after 6 straight dividend increases from 16¢ to the earlier mentioned 70¢. The stock had peaked at about $40 last summer and had been declining steadily, with the downward slope steepening just before the dividend slash announcement.
I think the early stock price errosion was tied the the overall credit crisis and it’s effect on a company that requires a lot of debt. The dividend cut was accompanied by the announcement the company wanted to preserve cash in difficult times. Internet scuttlebutt hinted at difficulty with funding sources.
At this point, Aircastle has shored up it’s financing needs and the recently released Q1, 2008 earnings show a company in pretty good shape. Percentages shown are changes from Q1, 2007 and Q4, 2007.
- Revenues: $135 million, +92.8%, +11.8%
- EBITA: $119.9 million, +101.7%, NA
- Net Income: $31.6 million, +46.9%, -10.5%
- Net income before depreciation: $83 million, +49%, +5.5%
The net income before depreciation is the important one for a leasing company like Aircastle. The $83 million translates to $1.07 per share, giving excellent coverage to the 25¢ dividend.
Since I failed to mention it earlier: Aircastle is in the aircraft leasing business. They currently own 136 aircraft, leased to 59 customers in 39 countries. 92% of the aircraft are to customers outside the U.S. and 25% are air freighters. The company went public in 2006 and acquired approximately 50% of its fleet in 2007. Going forward, growth should be more incremental with several economic trends in their favor.
- AYR finances their aircraft at approximately 60% LTV. This allows them to borrow at attractive rates (last round at LIBOR +1.75%) on aircraft that have a current net lease rate return of almost 14%.
- Global air traffic is growing at a projected 6% rate per year.
- Of the approximate 25,000 global airliners, 4,000 are older, economically obsolete, fuel pigs. Higher oil prices prompt airlines to quickly replace these aircraft.
From listening to the last conference call and reading some of the press releases, I believe Aircastle is in a strong economic position to both grow their business and start increasing the dividend again. On the conference call, management made no commitment about the dividend, but the previous policy was 70% of free cash flow (net income before depreciation). For this last quarter, that number was $1.07 per share. Even if the 70% was too big a slice, 40% to 50% equals to a doubling of the dividend.
AYR currently yields 6.3% on the $1.00 per year dividend. I am adding this stock to my site’s Income Portfolio with the expectation of both dividend and share price increases over the next year.
Note: I currently have a long position in AYR.
Filed Under Income, InternationalBeer for Fuel?
Osage Bio Energy bringing barley ethanol to the U.S. | Cleantech.com
I am pretty OK with using corn for ethanol production. The U.S. produces the vast majority of the world’s corn, and if other countries want our corn, they can pay for it and make American farmers rich or U.S. ethanol companies will make it into tax-break loaded auto fuel.
But the article linked above hits me where I live. This company, Osage Bio, wants to make ethanol out of barley. As you probably know, barley is a main ingredient of beer. Who knows what this will do to beer prices! If barley prices double and triple, what effect will that have on a pint of my favorite brew? How much barley do you think goes into making that $5.50 glass of beer? More than the 5¢ worth of corn in the box of corn flakes?
At this point I think the only option is to petition my Senator to issue a press release requesting that the tax on beer be reduced without him actually having to vote on a tax reduction!
Filed Under Renewable EnergyCopa Holdings has profitable 1st quarter
With oil prices going through the roof, it is nice to see an airline generate some decent profits. Copa Holdings (CPA: 35.80 -0.03 -0.08%) is the parent of Panama based Copa Airlines and Columbia based Aero Republica. Earnings for Q1, 2008 were 91¢ per share compared to $1.12 for the same quarter a year ago. As one could easily guess, higher fuel prices put a dent in the earnings, with average fuel costs 35% higher for the quarter. Other revenue numbers showed some nice growth (all of the numbers are YoY quarter growth):
- Total revenue increased 21.9%.
- Revenue passenger miles increased 13.5%
- Yield per passenger mile increased 7.2%
- Load factor increased 1.6% to 78%
- Operating cost per seat mile increased 20.7% (see fuel cost increase above)
- Liquitidy (available cash & investments) equaled 33% of last 12 months revenues
- An annual dividend of 37¢ was declared
As a rule, airline stocks scare me, double scare me when fuel prices are rapidly rising. However, Copa is maintaining decent profitability in spite of increasing costs. The airline appears to be very well run (I have flown on Copa Airlines several times). The have a young (less than 4 years average age) fleet and serve the growing Latin America market.
CPA shares trade at around 10 time projected 2008 earnings. If they get any relief on fuel prices, owning this stock could be a nice place to be. I have CPA as a component of my Special Situations Portfolio and would be looking for buying opportunities if the stock pulled back into the low $30’s.
Note: I currently do not have a position in CPA.
Filed Under Emerging Market, Growth, International, Small CapHardinge, Inc. not getting it’s act together
Back in February I added Hardinge, Inc. (HDNG: 14.38 -0.09 -0.62%) to this site’s stock tracking as a turnaround candidate. In the 3rd quarter of 2007, the stock price was hammered by 50% when the company showed a zero earnings quarter. Previously, the company had been a steady generator of growth and profits. My thought was when the company was able to start generating profits at historical levels, the stock price would make a nice recovery.
In February, the 4th quarter earnings came in with a small net loss (-1¢), with the company claiming a decrease in net margins due to the unloading of some old inventory. Now, today, 1st quarter results are out with another quarterly loss! They reported a loss of 6¢ per share for the quarter on decreased sales and gross margin. Hardinge management blames a significant portion of their woes on currency exchange issues with their customers in Europe and Asia.
At this point in time, I see a company with 3 quarters in a row of negative earnings results. It appears management does not yet have a handle on how to return the company to its former profitability. For this reason I am removing HDNG from this site’s Special Situations Stock Portfolio. The share price after the news today is down a few bucks from where I added the stock to the portfolio. For me, there are better more interesting opportunities for stock investing at this time.
Note: I currently do not have a position in HDNG.
Filed Under Value-
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