Ceres loss widens, but analysts remain bullish as sweet sorghum prospects strengthen

| April 16, 2012

In California, Ceres, reported financial results for the second quarter ended February 29, 2012 and provided an update on its business in Brazil. For the quarter ended February 29, 2012, Ceres reported a net loss of $6.8 million or $2.48 per share, compared to a net loss of $5.4 million, or $2.72 per share, in the same period in fiscal year 2011.

Ceres reported that Brazilian ethanol mills began harvesting sweet sorghum produced from Ceres seeds in mid-to-late March, and the company received a Certificate of Quality in Biosafety from the National Technical Commission of Biosafety, or CTNBio, the Brazilian government’s commission that regulates biotechnology crop traits. Total revenues for the three months ended February 29, 2012 were $1.3 million compared to $1.6 million in the same period in fiscal year 2011.

Raymond James analyst Pavel Molchanov writes:  “Recommendation. Within the context of our broadly favorable view on the development of next-generation (Gen2) biofuels, Ceres represents a derivative play on non-food biofuels. Ceres’ diverse range of energy crops helps address “food vs. fuel” concerns and price volatility surrounding sugarcane and corn. The company’s position in the upstream of the biofuel value chain provides leverage to many process technologies and end markets. We reiterate our Outperform rating, which balances the unique IP platform and wide set of market opportunities with a distant outlook for profitability.”

“Ceres’ sweet sorghum provides a solution: it can extend a mill’s operations by ~60 days, yielding an estimated $9 million of EBITDA uplift. Following the company’s small-scale seed sales for Brazil’s 2011-2012 growing season, mills began harvesting the sweet sorghum produced from the seeds in mid- to late March, and the process will continue into May… Consistent with peers, we apply a discounted cash flow approach to arrive at a DCF value of $19.80/share, as detailed on page 2, and the current multiple is 86% of DCF. Our $20.00 target price is based on the DCF.”

Michael Cox and Mike Ritzenthaler of Piper Jaffray write:

“We are reiterating our Overweight rating and $24 price target after the company reported generally uneventful fiscal 2Q results. New, higher yielding sweet sorghum hybrids will be introduced over the next 2 seasons and the biotech approval process is soon to be underway. These present additional catalysts for sales AND profits over the next 3-4 years; as such, we recommend growth-oriented investors accumulate shares of CERE…We are modeling Ceres sweet sorghum plantings to increase from 3,400 hectares to 25,000 hectares next season. We believe a combination of Cosan/Raizen, Sao Martinho, and Clealco mill groups will account for the majority of 2012 plantings, with Bunge and several other groups presenting key upside potential in the coming years.”



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