Tuesday, February 06, 2007

Green IPOs: going to gold?

Investment bankers finished off 2006 with a flurry of IPOs that rivaled the pace in 1999 before the Internet bubble burst. December deal flow brought the total number of IPOs for the year to 198. The sector mix reflected growth opportunities and investor interests. Health care offerings were most prevalent, accounting for 18% of the deals, and energy deals represented another 16%.

In the energy group results were mixed in part due to the poor showing by the ethanol producers.
VeraSun Energy Corp. (VSE: NYSE), which went out at $30.00, closed the year down 34%. Aventine Renewable Energy, Inc. (AVR: NYSE), which was priced initially at $43.00, closed down 45% at the end of December.

Those heartbreaking experiences did not stop
US BioEnergy (USBE: Nasdaq) from staging its own public offering just before the winter holidays. Unfortunately, its performance so far has mirrored that of VSE, AVR and all the other ethanol producers, none of which are faring well under record prices for their corn feedstock.

My December 15th and December 19th posts
“Catching a Few Rays” and “Catch a Ray…Postscript” on costs and expenses for the biofuels industry cover the ethanol feedstock topics. I tried to provide some clues as to why ethanol stocks might not be a good bet until corn input prices moderate or an alternative feedstock can arranged.

BioFuel Energy Corp., based in Denver, may have a leg up on the other ethanol producers with a strong relationship with Cargill, which has been working to find efficiencies in corn as a feedstock including using the corn “stover” or stalks as well as the corn kernels. BioFuel Energy tapped JP Morgan as its lead underwriter and filed in early December 2006 for an initial public offering. It is expected to trade under the symbol BIOF.

In the meantime, if alternative energy is your preferred sector, there have been some successes in other technologies. Engineers have made considerable progress in perfecting solar components for local or grid power generation. Manufacturers have finally reached production volumes that make photovoltaic technology affordable.

Trina Solar Limited (TSL: NYSE) closed yesterday at $31.40 just fifty days from its first day of trading on December 18, 2006 and increased 70% from its IPO price of $18.50. Based in China, Trina Solar manufactures and sells solar power products around the world for residential, commercial and industrial applications.

China is also home for
Solarfun Power Holdings Co., Ltd. (SOLF: Nasdaq), which also floated an IPO in the U.S. in late December 2006. SOLF shares have made an impressive climb also, closing February 5, 2007 at $15.60, representing a 25% increase from its IPO price of $12.50. Solarfun manufactures photovoltaic cells and module for both domestic and international markets.

If you feel like you have been left behind by Trina and Solarfun, China has produced yet another solar cell manufacturer, JA Solar Holdings Co. JA Solar filed in mid-January 2007 for an initial public offering to sell 15 million shares. CIBC World Markets is leading the deal, which is expected to be priced between $12.50 and $14.50 and trade under the symbol JASO.

More established plays on the solar cell include British Petroleum (BP: NYSE) with its
BP Solar International division or Mitsubishi’s (8058: JP or MSBHY: PK) Electric Corporation (6503: JP or MIELY: PK). Even though both of these companies are have more history and are well established financially, these stock present compromises. If you invest in the either parent you will not be getting a pure play on the solar power industry. In investment in Mitsubishi means playing on the U.S. Pink Sheets or on the Tokyo exchange.

Neither the author of the Small Cap Copy web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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