Jim Lane
13 companies knocking on the door of greatness – will they make the grade?
13 companies. 5 already public – eight filing for IPOs. In the first category, Codexis, Amyris, Gevo, Solazyme and KiOR. In the second category, PetroAlgae, Myriant, Ceres, Mascoma, Genomatica, Elevance Renewable Sciences, Fulcrum Bioenergy and OriginOil.
They’ve shown what it takes to get to the threshold of great things – do they have the Right Stuff to succeed at scale?
The public companies
It’s been a good October for the newly public companies, after a miserable summer. Amyris (AMRS), up 15 percent last week.Solazyme, Inc. (SZYM), up 10 percent for the month to date. Codexia (CDXS) up 8 percent for the month. Gevo (GEVO), up 35 percent for the month. KiOR (KIOR), up 4 percent in the last two weeks.
For the most part, valuation on these early-stage companies, is part perception, part reality. The value depends on how much you place faith in the business plan, the technology and the management. There’s not much by way of revenue, and nothing in the earnings department, for early-stage investing. That’s why it is potentially so lucrative.
But perception must give way to reality – and, actually, the public companies are happy for that. Hungry for it. Generally, they’ve been dumbfounded at the lack of investor enthusiasm through a tough summer – because the companies have been building out their business plans as they told investors they would.
For Solazyme and Amyris, there was the expectation of new partners and new production capacity. Done. For Codexis, the expectation of a deal with Raizen in Brazil to expand into bagasse-based renewable chemicals., Done. For Gevo, it was time to sign up new capacity and work towards conversion of their first commercial-scale plant to isobutanol production. Done. For KiOR, it has been a time of building capacity – underway.
Pavel Molchanov, alt energy analyst for Raymond James, commented: “Following this rating change, KiOR becomes our third Market Perform-rated stock in the alternative fuels space. The key difference is that our rating on our other two Market Performs – Codexis and Rentech – reflects fundamental concerns about their business models, as opposed to valuation. Our top pick in the space – and, in fact, the only Strong Buy-rated stock in our alternative energy coverage universe – remains Amyris. We have Outperform ratings on Clean Energy Fuels, Gevo, and Solazyme.”
Fair? The stocks have generally been performing, throughout the summer, poorly in comparison to the broad equities markets. The space between current prices and analyst-based target prices is reaching astonishing levels. Solazyme, a 46 percent discount to its target price; Gevo, a 38 percent discount. Amyris, a 34 percent discount.
Inflection points?
For Solazyme, their next major JV announcement,. For Amyris and Gevo, start-up of their Sao Martinho JV and Luverne plants, respectively. Rentech, completion of its Colorado-based PDU next year. Codexis, its first major commercial arrangement outside of the Shell universe, or clarification from Shell on its strategy and timing.
The disappointments for ethanol in 2008, biodiesel in 2009-10, and the performance of the public advanced biofuels stocks in 2011 has created a potentially chilling effect for the seven stocks that wish to move forward with their IPOs.
Grading the class of eight IPO hopefuls
The star students – the A’s. With the eight new IPOs, sentiment has been running strongest amongst observers for Genomatica and Elevance – the renewable chemicals story is playing well, we hear. Liked by investors? Higher product margins, less capital intensive path to scale.
A-minus. Ceres is considered a special case, being such a long-term play and a very broad investor base, should an IPO prove unattractive.
Incomplete. OriginOil (OOIL.OB) is too new to the IPO group to have generated substantial section.
Leaving PetroAlgae (PALG.PK), Myriant, Mascoma, and Fulcrum Bioenergy.
Looking like a gentleman’s C. Of the four, PetroAlgae is considered the long-shot, given the long time the company has been in the IPO mix without pricing, and given the large capital raise ($200 million) and somewhat complex ownership structure.
The Solid B’s. Myriant, Mascoma and Fulcrum are all – like most of these new IPOs – financing events rather than liquidity events for investors. The current owners are trying to get more cars on the freeway, not heading for the exits.
Fulcrum is financing its waste-to-energy project in Nevada. Chief appeal? A low-cost feedstock story, and a great emissions picture,. What could be finer than converting garbage to fuels? Myriant is financing a scale-up of its ambitions in succinct acid. Chief appeal? Like Genomatica and Elevance, they are capitalizing on the large, relatively high-margin markets. On the down-side, a number of companies chasing succinct acid and the ongoing question of whether any of these companies can produce product at parity with the fossil fuel-based incumbents.
Mascoma – well, consolidated bioprocessing hard been a high-flying cellulosic biuofuels technology for a long time. That’s its challenge – like PetroAlgae, its been out there raising capital for quite a while. What do we hear from investors. The scale-up challenges are still generally not well understood by the market, and the daunting capital intensive nature of the projects, has put a question mark on the company’s ability to continue to scale. It’s a very light question mark, given all the progress the company has made, but enough to dull their momentum in an unenthused market. Many observers thought that Valero’s $50 million investment commitment would tip the scales for the company – but a more dramatic downstream partnership announcement may be just the ticket for the company to move forward.
The bottom line
So, thirteen companies – the lucky 13? Well, we doubt that all of them will, in the very long-term, survive the coming consolidation in biofuels. But if they haven’t quite yet fully locked in first-mover advantage, they have their noses out in front of the pack.
Others in the mix? Companies like INEOS Bio, Dupont Danisco Cellulosic Ethanol and BP Biofuels with access to huge balance sheets have to be considered among any real list of the potential winners in biofuels. Plus hot technologies like LS9, Cobalt, Qteros, Mendel, and Sapphire, to name just a few, that have remained on the private side of the equation.
Jim Lane is editor and publisher of Biofuels Digest.
New JV with United and Solazyme is exciting and promising–even if profitability is a ways down the road.