This is the second in a series of posts which will be focused on stock picks on a long/short basis which ISYN will track the performance of. This will not be actively managed and each idea will be independent of the others – no portfolio construction, etc. I will use the closing price of the day a pick is recommended.
Do your own research prior to investing in any stocks mentioned here. Always assume ISYN is biased via direct or indirect ownership in the companies mentioned.
***NOTE THIS HAS BEEN WITHDRAWN FROM THE WATCH LIST DUE TO UNCERTAINTY REGARDING ACCOUNTING PRACTICES***
Current capacity of 290,000 tons is expected to increase to 400,000 tons in Q408 through the construction of two additional production facilities and a ramp up in production capacity at a pre-existing facility. In addition GU has expectations of adding an additional 200,000 tons of capacity throughout 2009. Using what I expect to be an extremely conservative estimate for the price per ton of biodiesel ($435pt or ~50% of Q208 price) I derive FY09 revenue of $172mm with operating income of $57mm. GU is currently trading at less than 6x forward estimated operating income. In addition their debt coverage is exceptional and their margins are strong. I suspect with China’s pollution issues we should see more of a transition to biofuels such as GU produces.
Description
Gushan Environmental Energy Limited produces biodiesel and by-products of biodiesel.
Q208 Highlights
- Revenues increased 52% YOY and 20% QOQ to $58.3mm
- Gross Profit increased 43.8% YOY and 18.5% QOQ to $24.1mm
- Income from Operations increased 29.4% YOY and 8.3% QOQ to $19.3mm
- Biodiesel sales volume rose 21.8% YOY and 15.8% QOQ to 59,921 tons
- Selling price of biodiesel increased by 33.5% YOY and 7.6% QOQ to $865/ton
Fundamentals
LF = latest filing LY = EOY 2007
Liquidity
LF Quick Ratio 7.8
LF Cash Ratio 7.6
Profitability
LF Gross Margin 41.3%
LY Gross Margin 43.8%
LF Operating Margin 33.2%
LY Operating Margin 39.1%
Gushan Environmental
Entry Price: (receive at close) $3.25
-ISYN
was just at an event in new york on wednesday where dennis gartman addressed a group of about 40, primarily energy traders, power traders, and hedge funds. the question was will we see $50 or $100 oil first…his answer was a great one. even if opec moves, at their emergency meeting, to drastically cut supply (to an egregiously oversupplied market based on current contango in WTI)they will NEVER EVER EVER EVER follow their guidlines. his point was that these countries need X dollars to keep their governments running. at $125 per barrel of crude these govt’s need to sell X number of barrels to buy their gold, pay of officials etc etc…with oil at $70 they need to produce 1.8X barrels to keep up with their lifestyles and in some cases keep their nations solvent. Oil goes to 50 before it sees 100. good luck…
Solid point. Is it feasible that the ~50% discounting of the price of biodiesel per ton in my forecast may absorb the lower cost of oil?
just a blurb i got: Word on this equity mkt rally is that its completely driven bty credit mkts. Money mkt has loosened up a lot (see Libor ) and there was a size BWIC out there of a leveraged loan portfolio that’s been cxl’d (meaning they were probably able to come up w/ collateral to hold the position rather than panic selling)
So does the rally fade into next week or are we beginning to see some of the underlying issues resolved? I’m suspect of corporate earnings power but don’t want to bet against the momentum.
Look ! carefuly