Bellwether stocks of the Advanced Bioeconomy report good vibes: shoulda put a ring on ‘em?

March 26, 2018 |

The inflection points are as well known in investing circles as the inflection points of pilot, demonstration, and commercial-scale are familiar in industrial biotechnology development circles. We just do’;t always know where they are — leading some investors to leap in too early, some too late, and some bailing out too early.

There were signs that the industry might transition from the trough of disillusionment to the slope of enlightenment in 2015, and then in 2016 — which turned out to be the false positives that bedevil investors. But the jungle drums that we associate with the slope of enlightenment are beating louder, closer and in familiar patterns. Has the inflection point arrived?

Amyris 2017 revenue jumps 113% over 2016

In California, Amyris reported Q4 2017 GAAP revenue of $80.6 million, compared with GAAP revenue of $22.2 million for Q4 2016, and Q4 2017 operating income of $33.0 million compared with Q4 2016 operating loss of $34.5 million.  The company has reached fiscal year 2017 total GAAP revenue of $143.4 million, compared with $67.2 million for 2016 and $34.2 million for 2015.

And, best of all, the company is projecting for 2018 that it will reach $185-$195 million in revenue and expects more than $10 million of positive EBITDA for 2018.

As Amyris CEO John Melo noted, John Melo, “We have organized around three core markets — Performance Health and Wellness, Clean Skin-Care and Pure Flavor & Fragrance Ingredients. Each of these markets is delivering strong, profitable growth underpinned by the most advantaged technology in the sector. We are making good for humanity and our planet with No Compromise products.”

Other high points? The company expanded its strategic alliance with DSM through the sale of Amyris Brasil Ltda. and established long-term manufacturing partnership for Amyris’s high-volume products. And successfully launched Biossance into SEPHORA Canada stores, with SEPHORA U.S. sales during the year overall contributing to a greater than 650% increase in total 2017 Biossance retail sales over 2016.

The company introduced pharmaceutical grade Neossance Squalane USP through its Aprinnova joint venture opening new markets among FDA regulated products such as topical and dermal applications, including therapeutic skin creams and ointments.

And, the company announced the award of two grants, valued in aggregate at approximately $25 million, to accelerate innovation and to enable the company to further extend its leadership position in the industrial biotechnology sector. These grants are focused on furthering Amyris’s artificial intelligence and information platform and for the development of a novel isoprenoid pharmaceutical application.

REG hits records in 2017 for gallons produced and sold, average price up 6%

In Iowa, Renewable Energy Group reported rQ4 2017 revenues of $577.3 million on 152.8 million gallons sold.  Adjusted net income was $78.2 million and Adjusted EBITDA was $58.9 million — after applying the biodiesel tax credit which was retroactively restored for 2017 by the US government.  Total gallons sold decreased by 2% compared to the fourth quarter of 2016.

For the year,, the company recorded revenues of $2.2 billion on 586 million gallons of fuel sold and recorded an adjusted net income (after applying the restored tax credit) of $206.8 million and EBITDA of $230 million. It was a record year for biodiesel gallons produced and sold, with sales of 19.6 million more gallons and a revenue increase of  6% compared to 2016.

The inside stats on production are interesting. For Q4 the company sold:

85.1 million gallons of domestic biodiesel, 18.1 million gallons of renewable diesel, 9.4 million gallons of biomass-based diesel purchased from third parties, 30.6 million gallons of petroleum-based diesel fuel and 9.6 million biodiesel gallons produced by its German operations.

Pricing? The average price per gallon sold (including RINs) for B100 was $3.21, an increase of 5.2% from the same period in 2016.

Overall production was down 11.1 million gallons for Q4 2017 compared to Q4 2016 — the result of downtime at its Ralston, Iowa facility related to an expansion project and downtime for repairs at our Madison, Wisconsin facility. The Company also utilized contract or toll manufacturing arrangements, which contributed 6.4 million gallons in the quarter.

Some might note the Q4 cash burn, with the company dropping from $116 million in cash on hand to $77 million after investments in property, plant and equipment. But A/R is essentially flat at $90.8 million and inventory is at $110 million, up $10 million for the quarter — REG’s in no cash jeopardy based on these reports.

Aemetis rocks on

In California, the biggest news this week from Aemetis was that its Universal Biofuels subsidiary in India completed the construction of an advanced biodiesel pre-treatment unit to process the low-cost feedstocks to be provided to the plant under the BP Singapore supply agreement into low carbon high-quality distilled biodiesel.

The new pre-treatment unit allows the use of high Free Fatty Acid waste feedstocks by Universal Biofuels while meeting the biodiesel quality standards set by international fuel standards. The advanced biodiesel pre-treatment unit was built to supply biodiesel to the EU and US under the three-year supply agreement signed with BPS in May of 2017.

“We expect to receive feedstock and begin production in April with shipments to BPS to begin in the second quarter of 2018,” said Aemetis CEO Eric McAfee.

The Aemetis plant in Kakinada, Andhra Pradesh, India has a capacity of 50 million gallons per year and is the first and only India biofuels producer approved under the Low Carbon Fuel Standard for delivery of biodiesel into California.

But there’s been other news this past week Aemetis, that the company received third party validation from Leidos Engineering of ethanol and protein yields produced from the successful operation of its Integrated Demonstration Unit at InEnTec’s Technology Center in Richland, Washington. Aemetis continuously operated its gas fermentation process for over 120 days, meeting the requirements for a USDA 9003 Biorefinery Assistance Program guaranteed loan.

The IDU proved out a yield of 77 gallons of cellulosic ethanol per ton of biomass, closely matching yields predicted by Leidos engineering models developed from over 20 separate technology deployments. Using adjusted engineering models and subsequent results from the IDU, Leidos engineers expect the yield from the IDU to translate to commercial yields of approximately 96 gallons of cellulosic ethanol per ton of biomass at Aemetis’ planned 12 million gallon per year commercial facility in Riverbank, CA. Aemetis operated the IDU with 94% uptime, thus validating the combination of advanced arc furnace and gas fermentation technologies provided by LanzaTech and InEnTec to convert waste biomass into low carbon, renewable cellulosic ethanol and fish meal.

Yields produced by the IDU and verified by Leidos engineers were in line with the pro-forma expectations used for key financing activities, verifying the economics of the overall project. With the pro-forma validated, Aemetis is able to move towards closing of its USDA 9003 Biorefinery Assistance Program guaranteed loan and related financings.

Bottom line: AMTX, AMRS soaring, but why does REGI languish?

Now, Aemetis is a small-cap company with a $46 million market cap and with its aggressive program using high-priced advanced biofuels to transform its economics, there’s little surprise that the company’s market value is on the rise — essentially, the argument over Aemetis’ value is one between skeptics who disbelieve the advanced technology and those who have become convinced of the value based on the hard data from third parties. Plus, a disagreement between investors over the timing and cost to reach Aemetis’ ambitions. None doubt the higher value in advanced biofuels and the strong demand in the California market.

And, Amyris’s transformation has been painful and the company has fallen far from its IPO valuation days when it was positioned as an advanced fuels company — but with a market cap reaching towards $300 million, we’re looking at some increasing fiscal heft here. Though with a prospective $10 million EBITDA for 2018, the valuation is still very much about investors’ views on future growth — as that’s a sky-high P/E ratio even when achieved – the NASDAQ 100 average was 26.84 at last glance, so Amyris ‘ 2018 results are more than priced in even if it hits its targets and could somehow translate all of its projected EBITDA into net earnings.

But leaving the mechanics of valuation aside — the market sees the company as one with real momentum, and we’d be very surprised if the company does not have a significant upside for investors in 2018 should it realize its ambitions for $175-$185 million in sales. It wasn’t so long ago that the discussion was around whether Amyris would ever grow up and become a $100 million revenue company.

Which brings us to REG — in sales, in production, in fuel price, in transformation from a US biodiesel company into a company with international operations, a foothold in blended fuel distribution and an attractive renewable diesel business — REG has hit almost every high note expected of it. REG Life Sciences continuing to be the question mark in the highlight reel.

So, why such a low valuation? It’s trading up, at $12.05 per share, and that’s good.. But unless we missed something, the company just reported (adjusted) annual net income of something like $5.30 per outstanding share, and at the current NASDAQ P/E ratios the company’s stock ought to be trading at more than $100.

Which brings us to the problem that REG has yet to overcome — that its stock symbol really stands for Reported Earnings based on Government Initiatives — and that the company’s fortunes are tied entirely to the US Renewable Fuel Standard (driving volume and price) and the Biodiesel Mixture Excise Tax Credit  (driving the profit), and the company’s fortunes are discounted by Wall Street’s non-believers in government reliability.

Even though the RFS has proven to create a far more price and volume resilient market than say, petroleum, whose price and profitability has been gyrating as wildly as Beyoncé in her music videos recently.

Will REGI stock take off soon? The company has had inexplicable trouble in recent months in translating its message, so well heard in Washington and the Midwest, into the kind of rhythms and beat that Wall Street like to dance to. It’s completely mystifying.

AMTX and AMRS? Significant upside there in sales for AMRS this year, according to management. It’ll be your call how much of that growth is priced in, and the risks associated with believing the messaging out of Emeryville which has always been prescient on direction but often a little off on the timing.

AMTX — there’s tremendous upside in both its operating assets in India and California, the question you will have to answer for yourself if not whether the projects underway will transform the economics, but when they will transform them and to what expect Aemetis can affordable finance the transition so that the upside belongs to equity holders not debt holders (and there’s a USDA loan guarantee inflection point therein to watch) — and the extent to which you believe these novel technologies will work when deployed at commercial scale.

If you believe in the tech and you think the timing is well understood, we’ll leave you with this thought from Beyoncé:

‘Cause if you liked it, then you should have put a ring on it
If you liked it, then you should have put a ring on it
Don’t be mad once you see that he want it
If you liked it, then you should have put a ring on it

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