Tuesday, August 29, 2006

Comment: Aventine Renewable Energy (NYSE:AVR)

I mentioned Aventine Renewable Energy (NYSE:AVR) on August 25 in connection with Friedman, Billings, Ramsey's positive note (link). I suspected the shares may have some additional downside in them and unfortunately for the shareholders AVR took another 2 pt hit the following day. The shares rebounded nicely and are showing some signs of bottoming.

Soleil Securities Group's Ian Horowitz downgraded his rating on AVR to Hold from Buy on August 28 saying that although they have raised their EPS estimates for AVR significantly since their recent quarter and subsequent discussions with management, they are lowering their tgt to $25 from $45.

Fim notes that management has a stated visible path toward expansion and has the locations and EPC firms as well as the technology provider to allow expansion from the current 140mmgy of owned capacity to 606.5mmgy, and are looking to build out the company's capacity to 1bgy and increase marketing to 1bgy by 2010 (for a total of 2bgy owned and represented capacity). Although these are visible production possibilities, the company does not have the balance sheet to follow through on this expansion plan beyond the pre-funded 56.5mmgy dry mill at Pekin. Management has yet to determine the appropriate avenue for funding their expansion goals

As of this morning (Monday, August 28) over 21mln shares that were purchased in a pre-IPO round in December at $12, are available for sale, providing selling shareholders with an approximate 100% return based on Friday's closing price. Firm notes we could see extended selling pressure on the name as these shareholders look to book profits.

Briefing.com is taking a look at AVR today:

AVR Aventine Renewable Energy -- Taking a Look

Ethanol stocks have been weak lately on lower oil prices so we thought we'd take a look at the sector to see if there were any names at attractive valuations. Aventine Renewable Energy is a recent IPO that has been struggling since its debut. There was a lot of buzz about this ethanol producer just two months ago. It priced on Jun 29 at at $43, at the high end of the expected $40-43 range. It opened for trading at $41.75 that day and has been in a steep decline ever since. The co is aggressively building up its capacity. It currently has capacity for 150 mln gallons, and its marketing alliance partners have capacity of 520 mln gallons, for a total current capacity of 670 mln gallons. The co is constructing a 56.5 mln gallon dry mill at its Pekin, IL facility and the co has announced additional projects with capacities totaling 550 mln gallons. AVR is profitable and looks attractive on a valuation basis. The co is expected to earn $2.04 this yr and and $2.44 next yr for attractive p/e's of 12.1x and 10.1x. Also, 1H06 revenue rose 95% yr/yr to $756.4 mln... It's worth noting that in Soleil's downgrade of the stock yesterday that over 21 mln shares that were purchased in a pre-IPO round in Dec in the low teens are now available for sale. As such, there could be some near term weakness, but the stock has shown some resiliency the past couple of days. It's a name to keep on the radar if crude oil prices remain high. Mkt cap $1.0 bln, avg vol 475k.

Notablecalls: One to keep on the radar! Notice the co is indeed profitable!

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