Gevo raises $10M in equity offering; what’s it mean, what’s it for?

December 13, 2015 |

In Colorado, Gevo closed a $10 million offering of common stock. Cowen & Company’s Jeffrey Osborne writes:

Funds raised through the equity offering will be used to execute capex at the company’s Luverne facilities. After having settled ongoing legal issues with Butamax in the previous quarter, Gevo is poised to ramp up isobutanol production for use in the Specialty Chemical & Solvents, Marine, Off-road, AJT, and Iso-Octane markets, with terms of the agreement allowing each company to annually sell 30 million gallons of isobutanol into any end market with amounts beyond 30 million gallons subject to royalties.

Gevo’s $5 million capex initiative at its Luverne facility, announced in the previous quarter, is set to improve the overall isobutanol production process by decreasing costs and bringing in house certain processes that had previously been outsourced. Management believes that they will be able to continuously produce 1.5 million gallons of isobutanol annually while also producing 15 million gallons of ethanol. The improvements to the facility are slated to be completed by either 1Q16 or 2Q16.

Currently the stock is trading at an EV/sales multiple of ~1.7X our 2016 revenue estimate of $43.5mn. We are lowering our price target to $3.00, which is based on a revenue multiple of ~2.4X (prior: ~3.0X) our 2016 EV/sales estimate. This compares to the peer group’s 3.0X multiple, with Solazyme trading at 3.8X and Amyris trading at a4.0X. In our view, increased sustainable production of isobutanol and further development of end markets could both serve as catalysts for the shares.

The Digest’s Take

After establishing the Side-by-Side approach to isobutanol and ethanol — instead of switching exclusively to isobutanol, Gevo committed to producing both — we expected that the company would have three production trains for ethanol and one for isobutanol. That would have resulted in a 3.75:1 ratio of ethanol to isobutanol, but here we see a ratio of 10:1. Suggestive that either Gevo has scaled back isobutanol production for the lack of buyers at good prices — or that the rate of isobutanol production is still far from ideal. Could be a combination of both. For sure, Gevo’s promise will not be fully realized until it is mostly selling isobutanol, or jet or marine fuel derived from it.

More on the story.

Category: Fuels

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