In the pursuit of clean energy and the profitability for publicly traded clean energy companies, one company who may have the upper hand at achieving profitability is Rentech, Inc. (NYSE: RTK).
Rentech is a provider of clean energy solutions developing projects that the company expects to produce certified synthetic fuels and electric power from carbon-containing materials such as biomass, waste and fossil resources.
The inside line on profits for shareholders could come from Rentech’s 61% ownership of Rentech Nitrogen Partners, LLP (NYSE: RNF), a publicly traded fertilizer company. Strategically located in the Midwest Corn-belt region, Rentech Nitrogen operates a nitrogen fertilizer plant in East Dubuque, Illinois that manufactures and sells natural gas-based nitrogen fertilizer products.
The company’s “Rentech Process” is capable of producing synthesis gas (syngas) from biomass and waste materials, and converting that syngas from its own or other gasification technologies into complex hydrocarbons that are then upgraded into fuels using refining technology the company licenses. In addition to continuing to develop projects using these technologies, Rentech is working on being able to license its technologies to developers of projects expected to produce biofuels or bio power.
Rentech Nitrogen is poised for growth with the growing season about to begin and should be a massive money maker for Rentech. With Rentech Nitrogen’s recent expansion project of its current facility, the company expects to increase ammonia production capacity by 70,000 tons annually and an additional 20,000 ton ammonia storage tank at the fertilizer plant headquarters.
With over 90% sales in Illinois, Iowa, and Wisconsin (Illinois and Iowa are the top 2 corn-growing states), the facility sells to the mid-corn belt area where there are higher Net Sales Prices for Ammonia therefore has a cost advantage over its competitors who mostly ship from the gulf area.
The demand increase in grain has forced higher fertilizer prices. The two largest corn producing states, Illinois and Iowa, are also the two largest nitrogen fertilizer consuming states with 33% of U.S. corn production in 2010 and 18% of U.S. nitrogen fertilizer consumption in 2010.
Since the turn of the millennium, Ammonia consumption has increased by 20% with UAN consumption trailing slightly by 14%, in Illinois, Iowa and Wisconsin.
Green Energy Industry:
With the combination of fuel conversion and biomass gasification, RTK’s clean energy technologies are both commercially proven and viable.
- United Airlines conducted a validation flight that tested RTK’s Synthetic Jet Fuel and the fuel is certified by the FAA.
- RenDiesel fuel was tested for 1,000 miles on two Audis and achieved “flawless” performance.
RenDiesel is anticipated to be twice as fuel efficient as ethanol and contains around 60 per cent more energy per gallon than ethanol.
President and CEO of RTK, Hunt Ramsbottom, was quoted in the Pritchard Capital Energize Conference saying that the company is only looking at high-return investments that will not require significant investment in before all financing and/or partners are in place.
Also, RTK does not intend to fund expensive development activities like front-end engineering and design for development projects without partners and spending is expected to be less than $2 million annually before financing is in place.
Tom Samson, Executive Vice President and Chief Development Officer of Rentech, Inc., has resigned from the Company effective February 3, 2012 to accept a position overseeing development of large scale energy projects.
Mr. Samson’s departure follows the Company’s recent announcement of a revised strategy that focuses on relatively small projects with attractive returns through partnerships and investment opportunities in the near to medium term followed by larger scale projects in the long term.
Rentech’s stock is traded under the symbol RTK on the New York Stock Exchange (NYSE) and has 266 listed full time employees.
Website: http://www.rentechinc.com/
Company Snapshot:
| Trading Symbol: | NYSE: RTK |
| Last Price: | $1.71 |
| Avg Vol (3 month): | 2,647,030 |
| Avg Vol (10 day): | 1,532,110 |
| Market Cap: | 385.12M |
| EBITDA (ttm)6: | 32.67M |
| Total Cash (mrq): | $121.21M |
| Shares Outstanding: | 225.22 million shares |
| Shares Short (1/13/12): | 7.78 million shares |
| Shares Held by Insiders: | 2.86% |
| Insider Purchases (Last): | 10,000 shares @ $1.38 Hunt Ramsbottom, Director Officer December 22, 2011 |
| Insider Sales (Last): | 1,558,728 shares @ $1.34 John Williams, Director December 21, 2011 |
| Institutions Holding Shares: | 90 |
| Top Institutional Holder: | 12,996,730 shares The Vanguard Group, Inc. (as of 9/30/2011) |
| Top Mutual Fund Holder: | 3,647,797 shares Vanguard Total Stock Market Index Fund (as of 9/30/2011) |
| Contact Information: | 10877 Wilshire Boulevard Suite 600 Los Angeles, CA 90024 |
| Investor/Analyst inquiries: | Julie Dawoodjee V.P. of I.R. and Communications Phone: 310.571.9800 x341 Fax: 310.571.9799 E-mail: ir@rentk.com |
| Next Earnings Date: | February 9, 2012 |
| Profit Margin (ttm) | -35.70% |
| Operating Margin(ttm): | 11.57% |
| Return On Assets(ttm): | 5.72% |
| Return On Equity(ttm): | -497.92% |
| Qtrly Revenue Growth (yoy): | 10.00% |
| Operating Cash Flow(ttm): | $36.47M |
| Levered Free Cash Flow(ttm): | $4.40M |
RTK closing price for the week that ended Friday, January 27, 2012 was $1.71, up 1.18%, on volume of 1,488.439.
RTK is trading 14.07% above its 50 day moving average and 39.50% above its 200 day moving average.
RTK is -13.64% below its 52-week high of $1.98 and 137.50% above its 52-week low of $0.72.
Rentech’s Governance Risk Indicator (GRI®) as of Jan 1, 2012 is:
- Audit (Low Concern)
- Board (Medium Concern)
- Compensation (Medium Concern)
- Shareholder Rights (High Concern)
Financial Expectations:
Currently, it is estimated that RTK has roughly $200 million cash or $0.88 per share, nearly half the stock price.
There is only $57 million in debt financed at a rate of 4%. The sleeping giant for the soon to come earnings is the RNF expansion project which is underway with returns expected above 20%.
RTK’s current quarter estimate has increased noticeably over the past 90 days from -0.02 to 0.03, a gain of 235.0%. The Agricultural Chemicals Industry average of -6.0% during the same time period highlights the expectations from RTK even more.
Based on analyst estimates, RTK trades at a forward P/E of 10, which is a 10% discount to the Agricultural Chemicals Industry and a much greater discount to clean energy companies.
According to our estimates, RTK is trading at a forward P/E of around 7.3. Given the revenue growth rate, RTK should trade at a minimum of 15 times its forward P/E and would therefore be valued at around $3 per share.
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