FutureFuel Corp. (NYSE:FF)

CAPS Rating: 5 out of 5

Recs

5
Player Avatar feynmanshomeboy (35.82) Submitted: 9/30/2011 1:38:05 PM : Outperform Start Price: $9.75 FF Score: -31.34

Profitable legacy businesses, two exciting areas of growth and $100m in cash for expansion and acquisition.EV/EBITDA=6.5 - good valueYTD revenue growth yoy=30%YTD earnings growth yoy=70%NO DEBTLegacy businesses-They make those small blue bleach-activator pellets that go in Procter & Gamble's detergent products and a chemical used in a Roundup-like herbicide. Great ROI on the purchase of the chemical plant, plus lots of facilities available for new projects like . . .Growth-FutureFuel is the name, but until last quarter the chemical segment was the majority of their business. As of last quarter, biodiesel accounted for about 50% of revenues. CEO, Lee Mikles, also said that biodiesel production is only at a fraction of the plant's current capacity, so there's the possibility of growth without more capital investment. There is rightly concern about the wisdom of using food-grade feedstocks for energy production. In the past few quarters, FF has used only tallow-like waste fats and french fry oils. Many biodiesel producers were created by farmer co-ops which do not posses the asset to use these waste feedstocks. CEO has stated that corn and soy will only be used if they become much cheaper.FF has quietly developed a presence is the lithium battery market over the last year. They're currently proving to their partner's specifications the carbon powder used in Li battery anodes. The most impressive part of the story is that FF had to pay nearly nothing to create the capital to start this new line. They received a $12m grant from the government and paid-in-kind to match that $12m with a shuttered facility on the property. In the filings for the government grant, available on SEC Edgar, ConocoPhillips is revealed as the partner in batteries. You can find out more about ConocoPhillips' batteries with a simple search. There are signs that these batteries will be used in GM electric vehicles, but it's not clear whether FF is involved in a current or next-generation battery design. However, it is clear that the current work is to prove the material meets the standards as opposed to it being a fundamental research project. Once proven, FF will sell the carbon material under a take-or-pay contract of several years' duration.Acquisition and expansion-The most impressive part about management has been the ability to turn very cheap production assets into great value in very little time. At the most recent Wedbush Clean Tech conference the CEO explicitly named the acquisition activity last year. I recommend you give it a listen while it's still available. FF bid on an asset that sold to another party for about a billion, but the company isn't willing to overpay. Why should they? The chairman, Paul Novelly, is in the company for $160 million, including an investment of $60 million last year. FF has the ability to raise the money to make a big move. Mr. Novelly is CEO of Apex Oil, a top 500 US private company.

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