Alto Ingredients Inc (ALTO)

[free_bee]

From Keith S..

PACIFIC ETHANOL – PEIX-NASD
As expected, the company issued a great quarter in Q1, though a large non-cash charge of $35 million against the warrants made them print a loss in Earnings Per Share—69 cents. But the more important cash flow, or EBITDA, was a positive $35 million, on 40 million gallons of ethanol sold.
I want to repeat, I am not worried about a loss in this quarter.
Between the $28 million raise at $16/share this quarter and cash flow, PEIX is almost net debt free. What to do with all that cash? One thing they will want to do is re-do their debt to a lower interest rate, and other than that CEO Neil Koehler said he just wants to have cash on hand. This company hasn’t had cash on hand for a long time.
Also, they started paying tax already. They didn’t really have to this quarter, but chose to, presumably to smooth out cash flow and earnings over the quarters that would help analysts build a better model.
Madera has restarted, and it will take a few weeks to be up to full capacity. At 100% capacity, the 91% ownership of PEIX = 182 million gallons per year.
This is a very different story than GPRE, in the sense that PEIX really can’t hedge, as the west coast price for ethanol is very different than the main Midwest Chicago hub, AND the Los Angeles hub isn’t liquid enough. You can’t run derivatives through those contracts. So for better or worse, it’s a mostly spot price company. Right now, that’s a lot better. But it sure is volatile! Here is a custom built Bloomberg chart of PEIX margins over the last 12 months, up until yesterday:

pacethanol
Other tidbits from the conference call just ended:
-CEO Neil Koehler said he has lots of grain storage capacity, and Madera added to that
-there’s 5.5 million warrants left to be exercised
-they’re working on getting some real sell-side analyst coverage, not just paid services and me
One caller brought up valuation—PEIX is now trading at just over 2.5x annualized Q1 EBITDA. Because of higher volatility and smaller size, PEIX will trade at a permanent discount to GPRE. But 4x multiple is probably a bit more realistic.
Having said that, I only own 2000 shares, and I’m happy with that for now. If I owned any more this would not be a sleep at night stock for me.
Overall, the ethanol market in the US is in good shape. Inventories continue to be well below the norm for this time of year. Imports have stopped once again. Fears of cheap Brazilian sugar cane based ethanol swamping North America? Won’t happen; pricing isn’t going to allow that.
I do see both stocks trading higher, though the easy money has been made. I have small positions in both and I’m happy with that.