Aventine Renewable Energy receives thumbs-up but no stock upgrade in analyst review

In lllinois, Aventine Renewable Energy received a favorable report, but no upgrade, from Raymond James analyst Pavel Molchanov.

Molchanov wrote: “While the near-term outlook for the industry remains choppy, the demand picture looks increasingly bright, with widespread adoption of E10, higher blends on the horizon, and rising penetration of E85; thus, the longer-term outlook for the ethanol industry is not nearly as negative as the charts may indicate…It is important to note that physical (cash) corn prices are trading $0.50/bushel below CBOT prices…Aventine’s active hedging strategy, alongside its higher co-product pricing, places its operating model in a more favorable position – realizing cash margins of ~$0.30/gallon under current market conditions…the remainder of 2008 will most likely be lumpy in terms of the marketplace being able to efficiently absorb the significant amount of capacity coming online.”

“For Aventine,” he added, “with the auction-rate securities situation resolved, the company is on track to open up its two new plants, Aurora West (Nebraska) and Mount Vernon (Indiana), during 1Q09, bringing its total nameplate capacity to 433 MMgy, approximately double current levels.”

Aventine reported sales of 211 million gallons for the first quarter, up 20% over 2007 and is on track to achieve an ethanol marketing capacity of 1.2 Bgy by the end of 2008.

Raymond James analyst Pavel Molchanov commented: “Aventine posted operating earnings of $0.26 per diluted share in 1Q08, well above our estimate of $0.01 and consensus of $0.08. The company has reached the halfway mark on the construction of its two new ethanol facilities – Aurora West (Nebraska) and Mount Vernon (Indiana) – scheduled to be brought online during 1Q09. Despite the sharp rise in corn prices during the quarter, the company’s active hedging strategy tempered the pressure on its crush spread ($0.60/gal vs. the benchmark average of $0.55). Additionally, the overall commodity boom has led to higher co-product pricing (41% of corn cost), providing another hedge against the current elevated corn price environment. While only slightly increasing our gross margin assumption by 0.5% for 2008, we are significantly raising our EPS estimates (shown below), showing the power of operating leverage.”

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