Tag Archives: green
Carbon-Free NZ: Mass Biofuel Production
4:10 PM Wednesday Oct 2, 2013 EXPAND The Bioenergy Strategy indicates that 30% of our transport fuels could come from biomass by 2040; Scion research has shown that, long-term, we could theoretically do 100% New Zealand is in the enviable position of potentially becoming the Saudi Arabia of biofuels in the South Pacific, without the food Vs energy debate over biofuels that has plagued other nations. New Zealand has the capacity to produce all its transport fuels from indigenous natural resources. As petroleum becomes more expensive over the next decade we can transition to transport fuels from biomass (organic matter) and waste. Technically these are achievable now, but the economics are not quite there. Internationally there are a number of technologies available to convert biomass and organic matter into liquid biofuels. Some of these have been around for decades while others are emerging (including from pioneering New Zealand companies). Unlike many countries where the focus has been on the production of ethanol from sugar crops and biodiesel from vegetable oil, we can use our cropping land for more valuable products, such as food. The New Zealand focus for biofuel production is on using our biomass from wood and organic matter from municipal waste. As a result we will not have the food Vs energy problems. Instead, in New Zealand, it’s food plus energy. Transport fuel production from renewable sources is not new to us. Anchor Ethanol has been producing ethanol from whey for a number of years. The ethanol can be blended with petrol as Gull currently does. The production of biodiesel initially focused on using the feedstocks tallow, used cooking oil or canola oil, with conventional conversion technologies. For a short period biodiesel production was supported by financial assistance from Government which stimulated fleet owners to successfully trial biodiesel. Demand for biodiesel outstripped supply. However, because of the short term of the assistance, investors stayed clear of building new production capacity. Now only Green Fuels NZ, who purchased the biodiesel production business from Solid Energy, produce biodiesel commercially. The experience of biodiesel showed the significant international marketing benefits that are achievable for NZ Inc when we seriously use biofuels in vehicles. Many tourist businesses, such as in Queenstown where all tourist operators used biodiesel, gained significant market advantage from being able to promote themselves as ‘clean and green’. This carries over into our export businesses where sustainable production is becoming more important to customers. This initial biodiesel and ethanol production was always going to be limited, but its importance with regard to transitioning to greater volumes of production was in the experience vehicle owners gained in the use of biofuels. However, there would have been enough feedstock for conventional technologies to have provided adequate quantities of biofuel until the economics of advanced biofuels occurred. The emerging biofuel production of greatest relevance to New Zealand uses advanced technologies and feedstocks of biomass or waste organic matter. These are not the most attractive feedstocks as they are low in sugars and starches. We have a lot of biomass and we are good at growing it, and we have an endless supply of organic matter in municipal waste. In fact, municipal waste costs us money to dispose of. Commercial facilities producing these biofuels are currently starting in many countries. They generally require government subsidies – the level of which gives an indication of just how close the technologies are from operating in an unsubsidised market such as ours. Taking into account petroleum price projections. I estimate we are only 5-10 years off being fully commercial. We currently waste 10-15% of our forest production through harvesting and processing. This quantity of wood residue would be enough to get biofuel production started using advanced technologies. This would promote larger quantities of biomass from extended forest planting. The Bioenergy Strategy prepared by the Bioenergy Association indicated that 30% of our transport fuels could come from biomass by 2040. Scion research has shown that, long-term, we could theoretically do 100%. The economics of this sort of production is likely to be carried through by the value of the co-products that are also extracted during the process. Wood and other organic matter is rich in chemicals, only some of which can be used to make biofuels, and these chemicals will become more valuable as petroleum prices soar. The chemicals from wood can also be used to make bio-plastics which can substitute petroleum-based plastics. Consolidation of the current sector, based around the production of transport biofuels and their co-products, along with our ability to efficiently grow wood, could lead to our working with Asian countries such as Singapore, which does not have enough land to grow wood for production of liquid fuels and bio-based materials. The demand for liquid fuels for transport and other uses is unlikely to disappear, but the price will escalate. Now is the time to start partnering with Asian countries so that we use their money, and our ability to efficiently grow wood, to produce their liquid biofuels. New Zealand could become the Saudi Arabia of the region in the production of biofuels. For weekly Element news sign up for our newsletter here Brian Cox is the executive officer of the Bioenergy Association of New Zealand. He has over 30 years’ experience in identifying, investigating and developing commercial capital investment projects in the energy and infrastructure sectors. The Association represents all commercial, research and academic parties involved with wood fuel, biogas and liquid biofuels. Previously Cox led the development of the New Zealand Bioenergy Strategy (which he now works to implement) which has been recognised within the Government’s Energy Strategy. By Brian Cox Continue reading
Adecoagro: An Excellent Long-Term Farmland Play
Oct 2 2013 Stock And CMP – Adecoagro S.A. (AGRO) currently trades at $7.61 Investment Summary Adecoagro is an excellent farmland play with a meaningful country risk related to Argentina. Current valuations are however compelling enough to consider the stock with a long-term investment horizon. Company Overview Adecoagro is a South American agricultural company and owns over 275 thousand hectares of farmland and several industrial facilities spread across the regions of Argentina, Brazil and Uruguay. The company produces over 1.2 million tons of agricultural products including corn, wheat, soybeans, rice, dairy products, sugar, ethanol and electricity, among others. For 1H13, Adecoagro generated $291 million in sales and $70 million in EBITDA with a robust operating cash flow of $38.2 million. The Bullish Case The Cushman & Wakefield appraisal and valuation of the farmland property underscores the case of undervaluation and stock upside potential. As of September 2012, the market value of the farmland in Argentina and Uruguay was estimated at $800 million. The same appraisal, values the Brazilian farmland at $137 million. Three recent farmland sale transactions prove that the farmland valuation given above is relatively conservative. On September 2013, Adecoagro entered into a sale agreement to sell the San Martin farm for a total price of $8 million. This represents a 15% premium over the Cushman & Wakefield land appraisal value. In December 2012, Adecoagro completed the stake sale of Santa Regina at an 11% premium over the Cushman & Wakefield land appraisal value. Also, Lagoa do Oeste and Mimoso farms in Brazil were sold at a 7% premium over the Cushman & Wakefield appraised value with the transaction generating $20.8 million of cash proceeds. (Source: Slide 5 of 2Q13 presentation). One can therefore safely assume that the current land valuation would be at a 15-20% premium over the appraised value considering the fact that the appraisal was done in September 2012. A comparison of the land valuation with the current market capitalization is presented below. (click to enlarge) A premium of just 20-40% over the land valuation for a going concern is attractive. For the first six months of 2013, the business has generated a positive operating cash flow of $38.2 million. Also, investments of $126 million for the same period indicate an aggressive growth strategy, which should translate into higher income growth and cash flow growth in the foreseeable future. Therefore, just from the current farmland holding perspective and its capability to generate robust cash flows, the valuations look attractive. The transactions, which have been at a premium over the indicative valuation by Cushman & Wakefield, also point to the fact that Adecoagro has the financial flexibility through farmland sale besides the regular fund raising activities. From a valuation perspective and especially from a cash flow perspective, it is encouraging to witness a steady improvement in the company’s earnings quality. As the chart below shows, the company’s EBITDA cash conversion has increased from 38% in FY11 to 54% in the first half of 2013. This is positive for a high growth company, which needs significant funds for expansion. (click to enlarge) Coming to the factors that will keep the revenue, EBITDA and cash flow growth robust, the company’s sugarcane and ethanol business have witnessed robust growth backed by significant investments in the segments. For the first half of 2013, the company net sales from the sugar, ethanol and energy segment increased by 24% to $117.7 million and the EBITDA increased by 364% to $40.7 million. Growth in the segment will continue and the segment will be one of the key stock price drivers for Adecoagro besides the rich farmland valuation. In particular, the company’s third sugar and ethanol mill in Brazil, named Ivinhema, will drive growth as this will enable Adecoagro position itself as one of the lowest cost producers of sugar, ethanol and energy from sugarcane in Brazil. Adecoagro has completed phase one of the Ivinhema mill with a crushing capacity of 2 million tons. Phase two will add another 2 million tons by 2015 and phase three will increase the total crushing capacity to 6.3 million tons by 2017. To put things into perspective, 2 million tons of annual crushing capacity at full capacity utilization would potentially imply revenue of $120 million and an EBITDA of $40 million considering the 1H2013 EBITDA margin of 30% for the sugar, ethanol and energy business. Therefore, the upside potential is significant in terms of revenue considering higher utilization of the current capacity. From a valuation perspective, Adecoagro currently trades at 7.4 times trailing twelve month EV to EBITDA multiple. It is however more important to consider the forward valuation and the current stock price with respect to forward valuations. If Adecoagro maintains the EBITDA growth rate clocked in the first half of 2013 (highly likely on seasonal factors and increased crushing capacity), the EBITDA for FY13 would be nearly $200. Further, if we consider the EBITDA growth to be somewhere close to the earnings growth estimates for 2014, the expected EBITDA for 2014 would be $280 million considering a 40% EBITDA growth. This would translate into an EV to EBITDA multiple of 4.8 for 2014. Even on the PE valuation front, the expected earnings growth suggests a FY14 PE of 10.4, which is attractive for an agriculture sector company. The primary reason for relatively depressed valuation is the company’s exposure to Argentina, which is subject to significant country risk. However, I believe that valuations will start adjusting on the upside going forward as the company generates a significant chunk of its revenue from Brazil. The constant sale of land at premium valuations also provides the necessary cash flow for investment in the Brazilian business. In order to boost investor confidence and underscore the management’s faith in the business, Adecoagro announced (September 23, 2013) a share repurchase program amounting to 5% of the company’s outstanding shares. The broad timeline for the repurchase is from September 24, 2013, with an initial horizon of 12-months. The repurchase serves two purposes – It positively impacts the stock price and it shows the confidence of the management in the company and the management’s focus on creating shareholder value. According to Mariano Bosch, the CEO of Adecoagro – We are focused on generating attractive returns in each of our businesses. Our consistent ability to sell developed farmland at premiums over the Cushman & Wakefield independent appraisal has enhanced our financial position and reconfirmed the value of our assets. The approval of the repurchase program reflects the Board of Directors’ and Management’s commitment to continue delivering increased value to our shareholders. The Risk Factors The country risk related to Argentina still exists. However, as mentioned above, the risk is diminishing with growing revenue share from Brazil. However, the company’s farmland value in Argentina and Uruguay was at $800 million as of December 2012. Therefore, the asset risk can’t be ignored completely. Another risk factor is the current valuation of farmland. While this is more of the concern in the United States, farmland prices have increased globally. If prices do enter in a bubble territory and decline, the company’s valuation would adjust to the downside. In my opinion, this scenario is unlikely in the foreseeable future as global food demand keeps farmland prices steady. An erratic weather condition is another risk factor in the farmland industry. This factor needs to be discounted in current times when global warming and its impact on the weather is a big concern. Conclusion Despite the risk factors, there are enough positive triggers for Adecoagro and the next few years can be fruitful for the company and investors as the sugarcane and ethanol business drives the company’s EBITDA higher. Investors can consider exposure to the stock with a long-term time horizon. However, there could be enough positive action in the stock over the next 1-2 years and the prices could surprise on the upside. Continue reading
Farmland Value Continues To Go Up
Updated: Thursday, October 3 2013, 05:44 PM CDT DAVENPORT, IA (CBS 2/FOX 28) — The value of cropland across the state of Iowa continues to be on the rise, but slowing a bit. The Land Trends and Value Survey, presented by the Iowa Farm and Land Chapter #2 REALTORS Land Institute, reported a statewide average increase of cropland values of 10.6% for the year from September 1, 2012 to September 1, 2013. This follows an average increase of 18.5% for the year from September 2011 to September 2012; and an average increase of 32.6% for the year from September 2010 to September 2011. Overall, the strong upward movement in land prices has leveled out even though we have seen growth in values over the past six months especially in the East Central District, which covers much of the local market area. “Clearly the decrease in commodity prices and the potential for highly variable yields are slowing the increases in land value especially in medium to lower quality farms,” said Eric Schlutz, Realtor with Ruhl Farm&Land and Muscatine Manager for Ruhl&Ruhl REALTORS. The survey also attributed the current land values to an increase in long-term interest rates, 2013 growing conditions, a lack of stable alternative investments, large amounts of cash on hand and the limited amount of land on the market. For the survey, participants are asked to estimate the average value of farmland as of September 1, 2013. These estimates are for bare, unimproved land with a sale price on a cash basis. Pasture and timberland values were also requested as supplemental information. Seven of the nine Iowa crop reporting districts showed an increase in the last 6 months. For local experts, the survey results were not surprising, said Dennis Stolk, Realtor with Ruhl&Ruhl REALTORS. “The best strength in the land market continues to be in the high quality, all tillable parcels, with some easing of the growth in values of the lesser quality parcels, as well as recreation land,” Stolk said. “Future direction of land values will be highly dependent on commodity prices for corn, soybeans, hogs and cattle, as well as interest rates and the general overall economic trend. “We are positioned in eastern Iowa and western Illinois to see good stable land values and do not anticipate a drastic movement downward or upward.” Ruhl Farm&Land, a division of Ruhl&Ruhl REALTORS, is focused on the sale, purchase and marketing of land, farms and acreages. Read More at: http://www.cbs2iowa.com/news/features/top-stories/stories/farm-land-value-continues-go-up-22831.shtml Continue reading
