Demand for ethanol - an eco-friendly substitute for, or additive to, petrol - has soared more than sixfold since 2000 as governments implement ambitious programmes for biofuel consumption. And Maple Energy (MPLE), an ethanol producer operating in Peru, is poised to benefit, having just commissioned one of the world's lowest-cost ethanol plants.
- Vertically-integrated ethanol producer
- Low cost of production
- Plans to grow output rapidly
- Profitable oil operation cushions earnings
- High net debt
- Ramp-up phase stuttered
Maple's key advantage is that it grows its own sugar cane as a feedstock. Not only is sugar cane the most efficient feedstock for making ethanol (ahead of corn, wheat and sugar beet), but this provides the company with a cheap and secure source of feedstock, shielding it from rising raw material costs or disruption of supplies.
Moreover, it can grow sugar cane pretty much all year round because of the favourable climate of the Piura region on the north coast of Peru. Coupled with using modern agricultural techniques, such as automated harvesting and drip irrigation, this ensures Maple gets a high yield - around 150 tonnes of cane per hectare, compared with 80 tonnes on average in Brazil.
This should keep production costs low. Maple says its production costs per gallon of ethanol should be $1.20 to $1.30 (75p to 81p) once it has completed an initial ramp-up. Add in another 40¢-50¢ in transport and marketing to get the product to Europe, where ethanol prices are highest, and total production costs come to $1.60-$1.80 per gallon. With the price of ethanol in Rotterdam currently around $3.20 a gallon, this should leave Maple with gross profit margins of between 44 and 50 per cent.
As to the 'ramp-up' phase, that has not been coming along as fast as hoped. Maple had harvested 320,000 hectares of cane in the six months to the end of September, against a target of 900,000 for the end of the year. Even so, the company has made three shipments to Rotterdam, selling 3.48m gallons of ethanol. With yields improving and the operation now being streamlined, Maple plans to sell 54m gallons in 2013.
MAPLE ENERGY (MPLE) | ||||
|---|---|---|---|---|
| ORD PRICE: | 67p | MARKET VALUE: | £100m | |
| TOUCH: | 65-67p | 12-MONTH HIGH/LOW: | 88p | 60p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 9 | |
| NET ASSET VALUE: | 68p | NET DEBT: | 82% | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 95.3 | -5.2 | -7.9 | nil |
| 2009 | 64.7 | -12.4 | -26.1 | nil |
| 2010 | 71.2 | -0.5 | 0.1 | nil |
| 2011 | 87.0 | 10.4 | 8.1 | nil |
| 2012* | 146.6 | 23.0 | 11.4 | nil |
| % change | +69 | +121 | +42 | – |
Normal market size: 2,000 Market makers: 4 Beta: 0.1 *Cenkos Securities forecasts £1=$1.61 | ||||
True, it cost Maple $280m to build the ethanol facilities, much of which it had to borrow, resulting in a high level of net debt (see table). In addition, Maple's shares are thinly traded in London, where the normal size is for just £1,400-worth, as most of the stock's trading takes place on the Lima Stock Exchange, where the shares are also quoted.
But just focus on the increasing profits. Broker Cenkos Securities forecasts that the ethanol operation will bring in cash profits of $29.5m in 2012 and $43.9m in 2013. Two additional revenue streams - selling power from the ethanol power plant to the national grid and an existing, integrated oil business in Peru that brought in $10.5m of operating profits last year - should pump up the numbers further still.
