When Green Energy Passes The Value Standards
Over the last few years, renewable energy companies have been some of the most loved investments of speculators and growth investors. These companies have been selling for high multiples that don't reflect reality. In today's market its nearly impossible to invest in a renewable energy company less than 10x earnings. Renewable Energy companies are high flying growth stock selling a valuation that don't make since. Most of these renewable energy companies are reporting net losses and are selling for 2x book value. This is the complete opposite with Renewable Energy Group (RIGI). The company is profitable and selling for less than book value.
Renewable Energy Group (RIGI):
The company is the largest producer of biodiesel in the United States. Renewable has grown its refining capabilities from 12 million gallons in 1996 to over 336 millions of gallon today. The company is able to produce the lowest cost biodiesel through its flexible use of feedstock, national logistics and distribution network. Renewable Energy Group has gained the expertise in retrofitting and optimizing production, sourcing feedstock, marketing, selling and distributing product. The company plans on leveraging its infrastructure through its acquisition of LS9 to expand into commercial grade speciality chemicals using bio-based feedstock.
The biodiesel market in the United States is a highly fragmented market with 75% of the refiners, producing only 33% of total production. Renewable is the only independent biodiesel producer that can compete with the agriculture producers like Cargil.
Second Quarter Highlights:
- The company sold 96 million gallons of biodiesel, a 24% year over year increase.
- The company produced 73 million gallons of biodiesel, a 30.1% year over year increase.
- The company had adjusted EBITDA of $3 million and had a net loss of $2 million.
- The company made significant progress on its Geismar, Louisiana facility during the second quarter.
- During the second quarter the company repurchased 668,776 shares.
At the end of the second quarter, Renewable had liquid assets which included cash, cash equivalent and marketable securities of $101.2 million dollars. The company saw a $20.9 million dollar increase in its cash holdings from last year due to the retroactive reinstatement of the 2014 BTC.
Share Repurchase Program:
During the second quarter, Renewable repurchased 668,376 under its repurchase program for an average price of $9.75/share. The company has spent $11.5 million dollars of the $30 million dollars that was authorized under the company's repurchase program. Renewable has so far repurchased 1,193,657 shares at an average price of $9.65/share. By the end of July 31st, 2015, the company has repurchased 1,555,546 shares for an average price $9.84/share.
Shares have declined thanks to short-term concerns over the reinstatement of BTC next year. I believe the government will reinstate the BTC at the end of December and investors are worried for nothing. Renewable's acquisition of LS9 will allow the company to exploit its existing infrastructure to manufacturer commercial bio-chemicals. Manufacturing commercial bio-chemicals will be a cash cow for Renewable and provide new source of revenues. The company is selling for around 11x its earnings, 9x 2016 estimated earnings, and 0.56x book value. Renewable is profitable with large cash holdings and has little debt on the balance sheet. The company is undervalued at the company's current market price and offering a 12% earning yield.