Raymond James energy analyst downgrades KIOR, citing “poor visibility” for 2014

January 13, 2014 |

In New York, Raymond James energy analyst issued a “tactical downgrade” for KiOR after slashing the share’s value to $2.68 per share from a prior estimate of $5.73. “KiOR’s first production in 2013 marked an important milestone for the company and the cellulosic biofuels industry as a whole. However, inconsistent execution and lack of operational visibility have become a major source of frustration for investors. After disclosing 4Q production in late December, KiOR hosted an update call yesterday to detail goals for 2014. Recall, 4Q production (~400,000 gallons) arrived slightly below target, though it was the highest quarterly figure to date. Sadly, visibility remains lacking. Having already stated that the plant will be offline all 1Q for operational improvements, management provided slim detail for the rest of the year: no production guidance of any kind, even in general terms. Once optimization is complete, Columbus is expected to generate improved yields and be able to run at higher throughput and reliability rates. We understand management’s reluctance to avoid a repeat of 2013’s “overpromise and underdeliver” scenario, but we don’t have much confidence in meaningful ramp-up progress in the near future.

“The other reason poor visibility is disconcerting is that steady-state operational data is needed to secure debt financing for Columbus II, the expansion project that is necessary for KiOR to reach cash flow breakeven at the corporate level. We previously hoped that the debt could be raised in 1Q14. That is no longer feasible: 3Q is the best-case scenario, 4Q more likely. With $25 million of cash at year-end, KiOR needs more capital this quarter, even though corporate cost cuts are reducing cash burn. In the absence of project debt, it will have to be either straight equity or a convert. We don’t doubt the company’s ability to raise the funds, but there is no escaping further near-term dilution – which is painful given the current market cap.”

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