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So why are we not participating in this trade mission?
After all we are closer to China than the Midwestern states and have access to 2 deep water harbors. What am I missing?
Hi Folks,
I have gotten my hands on the s implied version of the forecast model the finance department uses at PEIX.
Would appreciate it if you would consider sharing your results with the board anytime you run a projection.
Cheers
https://www.dropbox.com/s/5hublcfke1k95w8/PEIX%20Key%20Operating%20Metrics.xlsx
ID
I shall be off to bed soon so I will make some short cut in my explanation
I believe if you review average pps around the massive conversion period you would find pps to be between $14-15+ range.
Of this amount warrant holder paid approx $7.25. So if price of share is say 14.50-7.25 = $7.25 per share that needs to be accounted for. Company puts the money it received into cash to the balance sheet account and sets up an accrual account in the balance sheet to write of the balance of the money if cannot collect from warrant holders.
7.25 x 5.5 million = approx $40 million.
Lots of assumptions but does the reasoning behind the set up help?
Rule,
This is why I cannot be to mad at management to storing a lot of dry gun powder. What do they know that we have no way of knowing or finding out.
ID you asked "What happens when they sell say 1.5 million warrants does that then become a profit rather than an expense??"
Do mean if 1.5 million options are exercised? If so then at what price?
To answer this question we need to make certain assumptions
Between March and April approx 500,000 options were exercised. There are as of April 15th 5.1 million, there we can expect warrants to run out within 10-12 months. The important question is at what price?
Any prices above the average price used to set up the accrual would lead to some reduction in profitability. Any price less than that average would be positive on the reported eps.
If you chose your time horizon properly then this is something that shall pass with the company coming out stronger and more profitable.
If not then in the long run we shall all be dead anyway.
Yes Tika,
There is a huge penalty for early payment which I believe the last time we played with this number is about 5.0 million. As I told the board it would be far better to use that money in buying corn oil equipment.
Good question ID.
What the company set up is an accrual account against which the outstanding would be written off as the warrants become exercised in
2014. Depending on what prices these warrants these are exercised the accrual may be topped up which in that case there would be a hit to profit. If on the other hand share prices stay around current range then we may see an adjustment that would have a positive effect on profitability.
I just read a good summary by Kel3 summarizing the likely market environment that would persist over the next 12 months. If this prove accurate and we were to climb to say $20.00 then I see much smaller hits to the p/l statements. As you can see from the list of outstanding options some of these don't expire till 2018. depending on what these warrant holder think the pps trend would be in the future would determine how soon management would be able to declare
juicy eps.
I hope this helps.
If I were a conspiracy theorist
I would say the die is cast for a management buy out.
1. Get a few quarters of good results under your belt.
2. Get the pps on a significant uptick
3. Sell 10% of the company in a purportedly arm length transaction in a manner that lowers the pps.
4. Use upcoming financial report to engineer a drop in the pps through GAAP provisions to turn a great quarter into a so-so one
5. Pay off debt and clean-up the balance sheet.
6. Clean up and increase management's bonus programs
7. Re-open Madera plant
8. Final step Pay off outstanding balance of loans to allow 100% ownership
9.Offer current share holder a buy-out price of recent pps high + 10% and they will call you a hero.
ID,
You are quite right but as I have explained to you it does not make economic sense paying this loan off especially with a premium penalty attached.With an internal rate of return for the corn oil extraction units above 50%, management would deploy these funds to more productive endeavors and then pay off these loans with house money.
We have a great gig here. Good luck on your investments.
Slashnuts,
You of all people should wish this company well if you truly believe in your case and expect some money back. Hate blinds.
Great idea.
Here is what I learnt from today's cc.
Management is focused on improving performance and productivity.
Given the warrant situation the market decides what weights are assigned to eps or operating income in the pricing of pps. For now it seems like the pps is firmly under the influence of the eps.
High Frequency Traders rather than long term institutional investors are the dominant agents in deciding the direction of the pps.
That the analysts at Sardoti do not know much about the company they claim to be following. i wonder if their estimates were purposefully inflated.
That investment in PEIX by retail investors should be viewed through a long term prism. When the general market re-evaluate PEIX based on operating income basis a huge increase in pps would occur.
Finally that conditions in the marketplace beyond management's control are currently more predictable than in the previous year.
Kel,
What do you mean by this statement....
The fair value of exercised warrants are going to make the numbers look horribly skewed which also means the stock price is going significantly up.
Should it read
The fair value of exercised warrants are going to make the numbers look horribly skewed which also means the stock price is "NOT" going significantly up.
Value,
With the Madera plant operational output would increase 25% and I bet you that margins because of economies of scale would increase by 30-35%. Since dilution would not increase for dilution sake I would be safe to assume that whatever dilution you expect would be accompanied by increased/improved profitability.
Kel3,
I guess I failed that bad Kel3 eh?
Cannot even compliment you for your insightful comments and research. Just take it easy.
Kel3'
I have always thought that the main reason why we join these shareholder groups was so that we can learn from one another rather act as a cheering group. We talked about the effect the accounting for exercised warrants would have on the statement yesterday. Those who didn't understand should have asked more questions. There is no shame in doing that. This is a non-cash entry without that we may have been zing for some taxes. This report is a great performance and it is going to translate into higher share prices soon.
Please let's STOP wasting time talking about squeezes and try to understand what we have here.....the ground goldmine.
Hi Waterloo85
Thank you for your post.
For those investors who are long what is your hurry. Take a look at GPRE immediately after their results were announced. The stock price initially went down in aftermarket trade before taking off.
PEIX performed great and if its current investors are not smart enough to realize this then it would soon become a target of a buy out. Most likely a management buyout.
1st qtr 2014 earning:
Mark me down for $42.00 million
The difficulty I have with estimating 1st qtr performance is the fact that it is almost impossible to get a fix on sales.
How much product was sold with PEIX acting as sales agent. Given the problems with transportation in the 1st qtr can we still assume the split between production and agency sales would be 40-60? what pricing strategies were involved in the sale of production goods?
Spot pricing, long term contract pricing,hedging ect.
How will warrant conversion numbers be calculated as weighted to time or on straight line average basis?
It seems like input risks are not going to be a factor this year.
On factors that would influence cash flow what would it cost to refinance the current outstanding loans now that the company has reduced the figure substantially and at what rate - most likely less than half the rates we currently pay.
Restarting Madera is the best use of resources
Buying outstanding balance of ownership is the next best thing
Notwithstanding all the above I believe margins would average out around $1.20 and the earning per share figure will be 25-30% above 4th qtr numbers.
Hi Rule,
Very interesting graph.
The first obvious fact I see is that the peak margin in the 4th qtr. of 2013 was just slightly higher than the average for the 1st. qtr margin for 2014. This means if management sold production at 4th qtr peak ahead of the first quarter, margin performance for 2014 would be $.90 plus maybe 50% of the s.d which I eyeball to be $.30 so my prediction is that average margin for 1st qtr would come in at about $1.20 per gal.
sd= standard deviation
Precisely my point.
Its nice to pay off debt but not at the expense of highly profitable investments.
Cheers
Rule,
The lower the discount rate the better for the lender. It means the lender get tomorrow's money today and the lender pays no cost for this while he on the other hand has charged us interest on money that we have not used.
If I want to pay off the principal on my mortgage earlier I my bank would charge me the higher of these 2 fees: a 3 month mortgage payment or
the difference between the current mortgage rate and the rate at which I borrowed the original mortgage x the amount paid off.
ID,
Neil made a comment about having learnt a lot about how to produce ethanol in connect with the opening of the Madera plant. We may be the buyer instead of the bought party.
ID,
Sorry about all the typos in my postings but I believe there gremlins in my computer that keep changing the positions of the letters on my keyboard.
Cheers
ID,
Management's primary responsibility is to increase share holder value. Unless management can give share holder a very good economic reason why the spent 60 mil to pay of debt instead of buying say the Aemetis Inc plant which would give them say .7x 60 million gallon per year =$42 million x 2 = $84 million vrs $6-7 million savings. And remember that 100% of that interest in the loan is fully deductible as an expense.
Cheers
"That still saves them $6.10 million
That is STILL HUGE!!!"
MAYBE???
But only if management cannot find any other projects to invest that $60 million that would make more profit than the $6.1 million they saved paying off the $60 million loan 2 years early.
ID,
Please understand that at the time of these loans written up PEIX was in no position to determine the terms under which there loans would be written. 13.5% as a huge price to pay for even junk bonds. Now that management has the cash flow to fund this buy back the lenders want to make sure they collect all that is due to them. And management says to pay you faster than what the terms of the agreement says we need you to discount the amount you would have collected by 4%
Hi ID,
Present value means what would be the equivalent amount that I would pay you today for the money that you would be receiving in future.
Over the 2 year period for a $1000.00 loan you will receive $1270.00. If you want me to pay off that loan I would discount the $1270 that you would have received over the 2 year period. For this discount rate we agreed to use 4%. So you take the $1270 figure and discount it by (1-.04)= .96 and not multiply it by 1.04
ID.
It was awhile since I took lessons in finance so I may be way off base. But this is how I see it:
I understand the provision for advance loan payment payment as
supposing management wanted to pay of $1000 of the outstanding loan. then they must pay $1000 x 1.13 x 1.13)= $1322.5 which at a present value of 4% is reduced to .96 X 1322.5 = $1269.6
I this case the lenders are saying pay me now or payment later.
So unless management cannot find any investments that have better returns than $269.6 over a 2 year period it would be in their interest to not to pay off the loans.
I hope this helps
Interesting read: A National Emergency
http://www.larouchepub.com/pr_lar/2014/140417fracking_emergency.html
Usually on the Friday before expiry date if your trade is in the money you may get a call from your broker asking if you would be exercising the trade or not. If you are exercising then the broker would want you to have the money in your acct to buy the underlying stock before say 3pm at the latest. If you are not going to be exercising the option you should let them know and you would have till closing to sell your option. If you unable to sell the option before the close it would expire with zero value and you don't get any money for it. So do not wait till the last minute to try to sell because it gets very busy and the brokers play a lot of games just before the close. I hope this helps.
China eyes advanced ethanol technologies to quench fuel demand
http://www.ethanolproducer.com/articles/10944/china-eyes-advanced-ethanol-technologies-to-quench-fuel-demand
How about the the cc for 1st qtr being held after the trip to China. Maybe the Chinese govt may sign an agreement with PEIX. As is usually the case, a lot of preliminary work take place before such visits. And the visits are made to sign these deals.
Ethanol & Biodiesel Information Service
March 24, 2014 • Volume 11, Issue 12
Pacific Ethanol reiterates restart
of Madera ethanol plant Pacific Ethanol still plans to bring its long-idled 40-million gal/yr Madera, Calif., ethanol plant back online in the next two to three months, company spokesman Paul Koehler
confirmed to OPIS.
During Pacific Ethanol’s most recent quarterly earnings release in late February, the company announced plans to restart the plant – idled since early 2009, in the next 60 to 90 days.
However, the Fresno Business Journal reported the
company aimed to restart the Madera plant by May 1.
“60 to 90 days from our announcement [in February]
is the target,” Koehler reiterated to OPIS. “The quote in the other article is not an accurate characterization of our conversation,” he explained.
The company plans to reach nameplate capacity at the
Madera plant “pretty soon after start up,” Koehler added.
Meanwhile, the plant has its own wells, which will likely help as California is dealing with drought conditions.
Pacific Ethanol operates three other ethanol plants.
The operations are in Boardman, Ore., Burley, Idaho, and Stockton, Calif. All four plants combined give Pacific a production capacity of some 200 million gal/yr.
Kel
I have no idea what they would be paying for the remaining balance but some on the board thought because the company is doing much better now it would have to pay much more for the remaining 9%.
Second request for a response
Why is there not a consensus among posters on what PEIX will be buying the remaining 9% of ownership for?
Wasn't a price fixed at the bankruptcy as to what the assets of the company was worth? Shouldn't that figure be a known quantity?
Why is there not a consensus on what PEIX will be buying the remaining 9% of ownership for?
Wasn't a price fixed at the bankruptcy as to what the assets of the company was worth? Shouldn't that figure be a known quantity?
You don't raise $30 mill just to extinguish $.9 mil. So what is the balance for specifically?
And the creatures are not going to sell at $16 since it is not in their nature. I think they already had a buyer and approached PEIX with an attractive offer.
The higher share count would take effect second quarter. And who knows but I think industry leaders would have locked in sale prices because they knew the Feb-March margins wouldn't last