I can't reply to private messages. I only have the basic membership Sorry.
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I believe he's also in error on the issue of NOL's going forward. They haven't been used up, only the amount they can apply to the current taxation year have been exhausted.
Craig Hallum initiates coverage with a buy rating and a $28.00 target
source
The quarter is only 2/3rd over, so at this point I have no estimate for earnings.
I think you can figure out what the increase in production should be by looking at the full production capacity and the plant production for the last quarter. The info should all be in the last 10-Q
Suffering major computer issues at present, so my attention is focused elsewhere for the time being.
Yes, by January the warrants should be all but history.
BTW, for anyone PM'ing me, sorry but I only have a basic account. I can't reply. As for questions about my "sell" target, two things.
1. value1008 has a very good handle on the situation. Pay attention to his posts as well as those of a few others, temper them with your own observations, and you should be able to form some kind of range for a market valuation of PEIX. That and remember, ethanol is an industry with a somewhat volatile history. Things can and do change. A sustained downturn in weather before the corn crop is in changes everything. Severe rail problems (not just sensationalized stories of what could be) that tighten the ethanol supply changes things. A change in Brazil can change things. In other words, any price target based on today might not be valid two weeks from now.
2. My position in PEIX is deep in the money, longer dated calls that trade near to cash value, so my sell targets are not based on an ultimate share price target. I have been banking profits on an ongoing basis as I continue to roll into new call positions. For example, I recently rolled out of Jan $12.50 calls I bought @ $6.50 and sold @ $10.10. My $14 Jan calls that I bought at $6.90 are currently valued in the $8.60 (they were up as much as $9.10 earlier today.
BTW, trading in a Canadian non-taxable account allows me to move in and out of positions at will without being subject to taxes, let alone hampered by the punishing day trader rules US retail investors are held to (but don't get me started on how Uncle Sam privileges the rich through laws that handcuff and punish the retail investor). What I do might not be a viable option for someone in the US.
That, and I'm still a beginner at all of this. I just have a good memory and am very tenacious when it comes to learning and research. I knew nothing about the ethanol industry (or warrants for that matter) when I first stated posting on this board. I just knew I needed to understand why PEIX was losing money back then, and what exactly the warrants meant in terms of both an opportunity as well as a threat.
And yes, learning has cost me money along the way. School isn't cheap. Mostly though, what's really cost me money hasn't been the initial cost of the lessons. The real cost has been the cost of repeating those lessons until I finally get it.
Yes, the PEIX formula was stated in their June presentations to industry. It's also the formula I utilize to calculate their production margin. Simply stated, it's
(CBOT Corn+basis)*(1-Co product return)/2.74
where the default values are
basis = $1.28
Co-product return = 30% (sorry, I have no information that would allow me to break out the WDG and corn oil separately from that)
In other words, the WDG price is a product of the corn price. When corn drops, the WDG price drops. Dairy farmers and cattle producers are not going to pay more than the related cost to derived the same benefit from corn.
As for the export situation, remember that exports were driven by premium prices in China. That made it worthwhile to export. In the case of the domestic market, providers of DDG still have to dry the distillers grains and then ship them if they want to sell in California - expenses PEIX does not incur.
Keep in mind that the default values are averages. In Q2, the basis was substantially lower than the average value ($1.13), while the co-product return was substantially higher (39.5%). Again, this is why it's important to read the 10-Q's thoroughly. Those numbers led to my earlier questions about Kinergy losing money - the overall gross revenue numbers suggested by the plant production values, including the average price realized for ethanol and corn by-products, along with the lower than normal corn basis, suggests the net revenue derived just from plant production alone should be higher than the actual number provided in the 10-Q.
BTW I've noticed that the term "crush margin" is sometimes used in a confusing manner. In some instances it is applied to mean the difference between ethanol and corn prices - or if you will, the spread. In other instances it is applied to mean the same thing as production margin - the difference between corn prices and ethanol + co-products (production margin). That's why I use the term production margin as a matter of clarity.
This brings us back to the spread between corn and ethanol, which is up over Q2, and production margins, which are not. Of course, I've provided those numbers, so anyone paying attention already knows that. They also know that the increase in total production should offset the effect of the Q3 reduction to date in the production margin.
Which of course, returns us to the question of whether PEIX can maintain the high returns on co-products and lower corn basis. I have no answers. While the USDA weekly ethanol report for a number of Midwest states provides the average values for DDG and corn oil in those states, they do not provide the California market values for those products. In the case of the corn basis, however, I suspect that the sweet deal PEIX enjoys with their supplier will continue to keep their corn basis down - especially with Madera (one of two locations where their supplier stores corn) now fully operations.
But hey, the real story here with PEIX is in it's being undervalued in terms of market cap (it's a lot less confusing to use than share price, until the warrants are all over and done with). PEIX revenues are more than in line with the industry, while the valuation remains way below the industry norm.
That's why PEIX is able to beat the corn basis of $1.28 and got it down to $1.13 last quarter. And every penny of that is pure profit.
Well let's hope REX was intelligent with their hedging.
Considering their reporting period is off one month from PEIX, the high calendar Q2 production margins in April that boosted everyone else aren't part of their reporting period. I suspect that's what Sidoti was looking at, but if they hedged their production forward as much as 4 months back in March and April like they say they do in their 10-Q's, then they could make out like bandits.
Another thing I'm interesting in seeing (with PEIX) is if they continue to beat the numbers on the corn basis. They've done very well this year. Last quarter they reported their actual basis as $1.13 as opposed to the $1.28 I use in the production margin model. They beat it in Q1 as well.
If the change in the weather pattern here on the western edge of the Canadian prairies is any indication, warmer weather is on the way. We finally broke free of the wet, cooler weather yesterday. Warm and sunny here. The long term forecast is for lots of sunshine for the next two weeks :)
As each warrant is exercised, it adds to the outstanding number of shares. Thus, it ceases to be a liability (it's now accounted for as another share) and the value of the exercised warrant is re-classed as equity and added to the consolidated statements of cash flows (see pg 5 of the last 10-Q).
See what they're doing? While the warrants exist they represent liabilities. As they are not yet included in the total outstanding share count, so they need to be accounted for somehow, so they are assigned a fair value. The also need to build in an allowance that not all the warrants will be exercised (hence all the factors that reduce the actual valuation). Whether you agree with the process or not (and yes, I consider it to be grossly misleading), that's how it works.
If one warrant remained, it would be accounted for as a remaining liability (although I suspect it might simply be discounted to "0" as it would be insignificant, considering the balance sheets are rounded in thousands.
That's Dec corn. Here's Sept CBOT (PEIX doesn't forward hedge their corn, they have a sweet deal in place with Heiskell in exchange for leasing them grain storage space).
CBOT Corn
I don't know, but corn is getting demolished this morning. Probably a reaction to the Pro Farmers Tour numbers confirming the crop estimates. If they stay where they are and ethanol stays where it is, we're going to see a big jump in production margins
I wonder how many people realize just how much crude oil shipment by rail has increased in the past few years, and just how much more it's going to increase. I don't know the overall impact in the US, but here in Canada it's pretty staggering:
Rail shipments of Canadian crude jumped 83 per cent in 2013, the National Energy Board said, even as the Lac-Mégantic disaster put an international spotlight on the industry and inspired a slate of new safety regulations. The Canadian Association of Petroleum Producers expects to ship more than 200,000 barrels of oil a day by rail this year, up from fewer than 50,000 in 2012. That could swell to 720,000 barrels a day by 2016
http://www.macleans.ca/economy/business/how-the-pipeline-backlash-gave-a-boost-to-oil-sands-exports-by-rail/
That's starting to approach the capacity of the the proposed Keystone pipeline. Environmental lobbyists aren't stopping the shipment of oil, they're simply forcing it all to be moved by rail.
The article I linked to states that 10% of all Canadian rail revenues are now derived from moving crude oil. The projected numbers suggest it's on it's way to becoming the single dominant rail cargo over the next few years. While last winter's Chicago bottleneck was exacerbated by cold weather, I suspect that was only a hint of things to come over the next couple years. In fact, that same article makes an interesting statement regarding California:
So far, the stricter regulations haven’t put a noticeable dent in the growth of oil by rail. Some analysts predict that the cost of rail has now become so competitive that the industry is instead threatening to make some proposed pipeline projects unviable. Kinder Morgan cancelled its $2-billion pipeline between Texas and California last year because its refinery customers on the West Coast were opting to switch to rail.
So who is this Morton Collins who made 2 insider purchases in the span of two days? Well, he's no lightweight.
From Forbes:
Morton Collins, Ph.D. has served on our Board since June 1, 2009 and brings to our Board significant experience in raising and deploying capital for life sciences companies, extensive business and board experience in the life science industry and important industry contacts. Dr. Collins was previously a director of VGX from June 2008 to June 2009. Dr. Collins has been the Managing Partner of Battelle Ventures, which he founded, since August 2003. For the past 40 years, Dr. Collins has acquired broad expertise in venture capital funding of early-stage high-technology companies as a founder and managing partner of five different funds, Data Science Ventures I, II, III, and IV and Cardinal Partners. He chaired President Reagan's Task Force on Innovation and Entrepreneurship and served as a technology policy advisor to President George H. W. Bush. He is a former President, Director and Chairman of the National Venture Capital Association, and currently serves as Director to Kopin Corporation and several private companies. Dr. Collins holds a B.S. in Engineering from the University of Delaware, and his M.A. and Doctorate degrees in Engineering from Princeton University.
source
From Linked In:
Hepregen Corporation
January 2007 to Present
Chairman of Company
Inovio Pharmaceuticals (AMEX)
January 2006 to Present
Corporate Director
Kopin Corporation (NASDAQ)
January 1975 to Present
Corporate Director
Formula Pharmaceuticals
January 2012 to Present
Corporate Director
Pharos LLC
January 2006 to Present
Corporate Director
PD-LD Inc.
January 1996 to Present
Chairman of Company
Advisory Council to the ChE Department - University of Delaware
January 1986 to Present
Council Chairman
Graduate School Advisory Council - Princeton University
January 2002 to Present
Council Member
Leadership Council of School of Engineering - Princeton University
January 1997 to Present
Member of Council
Systems Biology Advisory Council - Institute for Advanced Study
January 2005 to Present
Council Member
President's Advisory Council - University of Delaware
January 2013 to Present
Council Member
Advisory Council for Global and Regional Solutions - Brookhaven National Labs
January 2010 to Present
Council Member
Science & Technology Advisory Council - Oak Ridge National Lab
January 2013 to Present
Council Member
source
This is clearly someone who chooses his investments wisely.
That's a strong $80,000 exclamation mark on the $395,000 statement made the day before.
I have to question whether the RFS review process has any relevancy for the ethanol industry any more. Here are some choice statements from the latest update on their progress:
"By statute, the final rule was due by Nov. 30, 2013. With the interagency review expected to take at least 30 days, the final rule is not likely to be released until this fall."
"We urge the administration to finalize the 2014 rule as soon as possible and start the process of finalizing the 2015 rule to meet the Nov. 30 deadline, as required by law"
and the real jewel . . .
"However, in recent weeks, both Sen. Chuck Grassley (R-Iowa) and Rep. Collin Peterson (D-Minn.) have said they don't expect the final rule to be released until after the November mid-term elections."
What's the point of any of this any more? Producers might as well follow the mandate set out in the original template and ignore these clowns.
EPA Spokeswoman: Final 2014 RFS Sent to OMB for Review
Pro-farmer final US corn estimate is in @ 14.1B bushels.
"Pro Farmer pegs 2014 U.S. corn crop at 14.093 billion bu.; Average yield of 169.3 bu. per acre"
Pro-Farmer numbers
That's slightly up from the Aug 12 USDA numbers.
"In the August 12 Crop Report, USDA projected a new record national average corn yield of 167.4 bushels per acre"
Aug 12 numbers
Yesterday Sidoti downgraded REX and the PEIX sympathy selloff began. Today the USDA Illinois production margins come out (a large portion of REX production is in Illinois) and the numbers are smokin' hot.
Value of ethanol and
DDGS from bushel
of corn $ 7.28
No. 2 Yellow Corn
truck price
IL points $/bu 3.73
Difference between
corn price & value
of co-products $ 3.55
Illinois Weekly Ethanol Report
Ok, puzzle time . . . . rearrange the letters in sidoti and what do you get?
Haven't got today's numbers yet (obviously) but it looks like the PEIX production margin is going to hang in there within a penny or so of last week's average.
Then you also have to factor in that Madera only started up last quarter, contributing only 50% of it's operating capacity, and then consider that it's been running full capacity all this quarter. In other words, capacity is now @ 50M gal/quarter, last quarter production was right around 45M with the start-up. That's an 11% increase.
Makes me shake my head at how many uninformed investors there are. The DJIA is hitting new levels, corn continues to go down in cost with every passing week, while PEIX continues to become more profitable with every passing quarter.
It's reacting to the Sidoti downgrade on REX. Funny thing is, Sidoti also downgraded REX in December. REX closed @ $46.85 back then.
Sidoti tries to get it right
It closed @ $102.33 yesterday.
Ok, so they're 0/1 on that one. How about the downgrade before that? On Jan 15, 2013 they also downgraded REX. It was @ $21.75 then.
Sidoti tries to get it right again
By July 2013, after initially reacting to the downgrade it hit a high of $41.00
That brings them to 0/2
Geez, ethanol is UP, not down
Looks like the talking heads are going to start beating the drums of doom again now that the Fed minutes are out. Batten the hatches as they work on taking the whole market, including VNRG, down again for a few days.
Ummm, anyone can write a blog and get it published on Seeking Alpha.
seekingalpha.com/author/alexander-maxwell
I am currently a Junior at the George Washington University and have been investing since the sixth grade
Meet Alex
This is a good read for days like today with VRNG
Giving Phony Sizes
I can't comment on REX as I'm not invested in it, but I think that's a very realistic, sustainable range for PEIX that allows for some give in the production margin. PEIX has eliminated a lot of costs over the past year. They also now have the 4th plant up and running at full capacity.
Look at the numbers over the past 2 quarters. Back out the FVA and costs associated with getting the 4th plant up and running. Back out the interest payments and replace them with with what can be expected to be paid going forward. Add in the revenue from the 4th plant (it wasn't contributing in Q1, and was only 50% in the 2nd quarter). If you do that, I think an annual EPS of $3 is vry achievabel, if not on the conservative side.
Sorry, got an appointment to get ready for, gone for most of the day after posting this.
First, CBOT corn didn't go up, it settled at $360.75 today, down from $365.75 on Friday.
Second, while CBOT ethanol dropped from $2.1580 on Friday to $2.1310 today, the price of ethanol in California held pretty much steady.
PFL daily report
The PEIX production margin is based on the California ethanol price (where their market is), not the CBOT price.
I suspect the rest is op ex taking advantage of weak-kneed traders to try to push it down to $20.00 Might have to hold some dry powder in reserve.
Perhaps you missed this?
Ukraine says it partly destroyed Russian armoured column
Nothing to do with ethanol, but it kicked the snot out of the overall markets. Makes for a good buying op!
I appreciate your insightful comments.
One thing I was looking for was some discussion in the 10-Q to account for how the warrant liability was recorded, in line with GAAP practices. I don't pretend to know a lot about this area, but I was subjected to a steep learning curve with the PEIX Q1 results and subsequent fall-out. Clearly it must be handled differently here, but I'm not following how it's accounted for.
Any insight?
Fear? No. Respect? Yes.
Of course if you don't trade options and only hold stock, you wouldn't have the same concerns.
I think the $2.04M is what the warrant holders paid to PEIX, not what the inducement was. Notice that in that entire section, they refer to "certain holders." I suspect it distinguishes the exercise of one group of warrant holders from the other.
During the three and six months ended June 30, 2013, certain holders exercised warrants and received an aggregate of 267,700 shares of the Company’s common stock upon payment of an aggregate of $2,064,000 in cash.
If you divide the cash by the number of warrants, you get the average exercise price paid for those 267,000 warrants.
Notice that in the next paragraph, they state what the total actual inducements paid was for the 6 months as of June 30th:
During the three and six months ended June 30, 2014, the Company paid an aggregate of $800,000 in cash to certain warrant holders as an inducement to exercise their warrants and recorded an expense of $800,000.
The ones since June 30th, they received a $1.4M incentive on the exercising of $20.8M value in shares. In other words, the average exercise price was reduced by $0.55/warrant.
From July 1, 2014 through August 13, 2014, certain holders exercised warrants in cash for an aggregate of 2,673,290 shares of the Company’s common stock for aggregate cash payments to the Company of $20,868,034. Also during that period, the Company paid an aggregate of $1,471,000 in cash to certain warrant holders as an inducement to exercise their warrants.
I think if the warrants are all gone by the end of the quarter, we'll be glad. Otherwise the FVA would of been harsh. With an average exercise price of $7.81 and a current share price of $20.80, the FVA liability on those 2.67M warrants would of been brutal. I think that would explain the motivation for the inducement.
Ok, found the $2.04M. I suspect the same reason applies. To get them the hell gone so we're not hit with another FVA.
"During the three and six months ended June 30, 2014, the Company paid an aggregate of $800,000 in cash to certain warrant holders as an inducement to exercise their warrants and recorded an expense of $800,000."
I suspect it was during a time when warrant exercises were stalled, and they wanted to reduce them because they knew full well what the potential was of the FVA come the end of the quarter.
The $1.4M was in 2013, when the warrants were likely below their exercise price. Not sure where the 2.04M number you're quoting is from, I can't find the reference.