Con-tango

Let’s stay alert; this link highlights the cons of ethanol production; it seems to be that ethanol is a net energy loser.
http://curtrosengren.typepad.com/alternative_energy/2005/07/the_debate_on_e.html

Evidently Clearfish seems to like Aventine AVR and expects the IPO to do well –it will trade like a spectacular story:
“They seem to have a perfectly fine model. Their profit expansion depends on their ability to expand their ethanol production capacity, which with their new plant should expand something like 40% (56.5M/139.2M) in early 2007. And they are obviously subject to the vagaries of ethanol pricing and market demand. They seem Solid, but the commodities pricing ambiguity gives them a higher uncertainty than we usually allow in that category, so we’ll hedge our rating by saying that they will probably trade like a Spectacular Story.”
But he warns about the IPO price per share –do not pay much more than $13:
“Stock: On 30 Dec 2005 they completed a private placement (to some former Morgan Stanley partners who formed Metalmark) of 21M shares at $13 for net proceeds of the company of $256M. They also have $160M in long-term debt. The IPO is a sale of those shares by the private investors, and not the company. No IPO proceeds will go to the company. That says that if you pay substantially more than $13/share, you’re getting ripped off. It’s not usually that easy to figure fair price, but they already did all the work for us. We’ll have to wait to see how many shares they offer, and at what price, to know whether this deal is attractive long-term or not, but almost regardless, given the hoopla in the market recently, the IPO will probably pop. (BTW, they will trade under the symbol AVR).”
This is Clearfish’s link for AVR:
http://clearfishresearch.blogspot.com/2006/04/ethanol-plays-aventine-renewable.html
On the other hand, he finds Verasun inefficient and not worth pusuing:
“But about those numbers, we could just say that they generate $1.03 revenue/gal of ethanol capacity, and their $23.7M operating income gives them $0.18 of operating income/gal of ethanol capacity. By those measures, they are operating far less efficiently than Aventine ($1.38 and $0.47, respectively). That is the cleanest measure we can come up with that accounts for their ability to run their plant at or near capacity (the dollar figure goes up or down if run above or below capacity), the price of corn and every other production cost, and is comparable across companies. In the spirit of comparability, we also have their OP margin of 10% ($23.6M/$235M).
For their profitable 2004 they had a gross margin of 21% ($39.7M/$186M), which dropped to 15% ($35.5M/$235M) in break-even 2005. That’s not the sort of trajectory we look for. Breakeven ($0.01/share earnings) on selling ethanol in 2005? We’re surprised, but Blah.”
This is the link:
http://clearfishresearch.blogspot.com/2006/04/ethanol-plays-verasun-energy-vse-ipo.html

I found a study from UC Berkeley where they show that ethanol is cheaper to produce than gasoline. Great news!
They deconstructed 6 studies finding numerous errors, to come to their favorable conclusion.
A highlight of their comments in their study:
“Kammen estimates that ethanol could replace 20% to 30% of fuel usage in this country with little effort in just a few years. In the long term, the United States may be able to match Sweden, which recently committed to an oil-free future based on ethanol from forests and solar energy.”
Here is the link at Green Car Congress:
http://www.greencarcongress.com/2006/01/uc_berkeley_stu.html