Flying the Friendly Skies on Corn Oil

Aemetis, Inc. (AMTX:  Nasdaq) just announced a new offtake agreement with Finnair Company (FIA1S:  HE) for Aemitis’ blended sustainable aviation fuel.  Finnair will get a total of 17.5 million gallons over 7 years beginning in 2025.  The blend will be composed of 40% of the Aemetis sustainably produced fuel and 60% conventional jet fuel.  Finnair will pay about $70 million for the ‘hard to get’ sustainable fuel.

Announcements like this one typically get investors excited as if one announcement is likely to multiply like rabbits, propelling a company into some sort of ‘billion-dollar wonder.’  Indeed, Aemitis also caught our attention in December 2021, after the company announced a ten-year agreement to supply 450 million gallons of renewable diesel per year to a travel stop customer.  The agreement was the focus of the post, "Aemitis:  Negative Carbon at the Pump" on December 17, 2021.  

The company reported $212 million in total sales in the most recently reported twelve months.  The most recent order will add at most $10 million annually to the topline while the earlier travel stop customer is expected to pay about $300 million per year.  Billion-dollar wonder may be a bit further into Aemetis’ future.  In the meantime, the recent order should at least give investors a cue to look more closely at Aemetis. 

Sustainable jet fuel is produced by Aemetis at its facility in Riverbank, California.  Cow manure, distiller corn or corn oil, and waste wood are used as feedstock for its renewable fuel process, using digesters and gas refinement and clean-up equipment.  The Riverbank plant has a 45-million gallon annual capacity to produce jet and diesel fuel from an intermediate cellulosic hydrogen gas.  Power supply for the facility is 100% renewable and Aemetis sequesters underground the carbon dioxide that escapes its production process.   Attention to its own carbon footprint likely pays off in discussions with potential customers. 

Finnair has set a goal of carbon neutrality by the end of 2045.  There will be baby steps along the way.  The first is coming up in 2025 to cut net emissions by half relative to the company’s emission in 2019.  Reducing aircraft weight is a first step.  More efficient flight planning and more efficient aircraft operations are also expected to contribute to early emission reductions.  The real progress toward carbon neutrality will come from the use of sustainable aviation fuels.  Finnair has already been working with Finland compatriot Neste (NESTE:  HE), which is among the first to produce sustainable aviation fuel in volume.  Finnair goes into some detail on its goals and progress in its 2020 Sustainability Report.

Finnair’s interest in Aemetis provides credence to the view that there is room for multiple vendors in the renewable jet fuel space.  Aircraft owners needs to have duplicate sources to stay in the air.  It is supply chain management in the 21^st Century.

For Aemetis it is a matter of holding out until its volumes are sufficient to generate a profit.  Cash holdings are now $7.75 million, which seems like a sufficient cushion to support $212 million in annual sales.  However, it may not be enough to support growth.  Sales in the last twelve months grew over 70% year-over-year, requiring the company to dip into its bank account for $20.7 million to keep operations humming along.  The current ratio is now 0.32. 

Investors who take a stake in AMTX now will get to grab that big brass ring of impressive topline growth.  However, they will also need to weather the downward pressure on stock price imposed by dilution as the company seeks more capital to reach its strategic goals.  Aemetis has already knocked on the door at the debt market.  At the end of December 2021, the company had $247.8 million in long-term debt on the balance sheet.

Besides the risk of capital shortfall, investors need to ready for consequences of significant short positions in AMTX.  As much as 20% of the float in AMTX or 5.8 million shares has been sold short.  Of course, announcement of strong fundamental progress such as the offtake agreement with Finnair can help to put momentum under a rising stock.  This could be a positive for investors taking a long position, but sizable shorting activity can also mean volatility.  Take long positions and tighten seat belts.    

 

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.