Tuesday, January 17, 2017

Verbio Moves Its Target

Last week German biofuel producer Verbio Vereginigte BioEnergie AG (VBK:   DE) announced expectations for higher sales and earnings in the second half of its fiscal year ending June 2017.  Management’s optimism is apparently being fed by excellent performance in the second fiscal quarter based on solid plant utilization and favorable raw materials prices.  Investors will have to wait until February 9th to see the actual numbers.  Verbio will not be releasing details until then. 
Verbio is an interesting nugget for investors with a taste for renewable energy investment.  No better time to enter a new position than with a wave of growth.  In the most recently reported twelve months Verbio earned EUR 656.9 million (USD 702.0 million) in total sales, providing EUR 48.3 million (USD 51.6 million) in net income.  Cash flow generated by operations is perhaps more interesting at EUR 63.9 million (USD 68.33 million).  This represents a sales-to-cash conversion rate of 9.7%, a record that should impress investors.
Strong cash flow is one reason the company’s balance sheet looks rock solid with EUR 71.7 million (USD 76.6 million) in cash in the bank.  The company has approximately EUR 3.9 million (USD 4.2 million) in total debt, representing a 1.47 debt-to-equity ratio. 

Verbio is also a beneficiary of low cost feed stock for its biodiesel and ethanol production.  The company sources agriculture waste for its fermentation processes from farms in the immediate area around its four production facilities in the Saxony-Anhalt area of Germany.  Annual production capacity is near 470,000 tons of biodiesel, 260,000 tons of bioethanol and 600 gigawatt hours of biomethane.  The economical waste-to-renewable fuel dynamic also gives Verbio bragging rights for a net savings near 90% in carbon dioxide emissions compared to fossil fuels.
The company is using straw to produce its Verbiogas-branded biomethane that can be refined into a gas that is chemically equivalent to natural gas.  Verbiogas can be distributed through regular gas pipelines and used as a transportation fuel in vehicles equipped to burn natural gas or for power generation.  The company received national recognition in 2010 and 2011 for the technology innovations in Verbiogas.
The preannouncement of higher guidance by this German leader in the renewable energy industry did not go unnoticed intrading in its Frankfurt Exchange-listed stock.  In the first trading session following the announcement, the stock actually traded off.  However, on further reflection on the good news in the intervening days traders sent the stock higher by more than 10% in value.  The stock has since set a new 52-week high price.  Nonetheless, the stock is now trading at about 13 times trailing earnings per share, which suggests there is still some room for appreciation.

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

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