Gevo, Inc. (NASDAQ: GEVO) is a leading renewable technology, chemical products, and next-generation biofuels company. The company has developed proprietary technology that uses a combination of synthetic biology, metabolic engineering, chemistry and chemical engineering to focus primarily on the production of isobutanol, as well as related products from renewable feedstocks.
On June 12, 2018, the Environmental Protection Agency announced the approval of isobutanol at a 16% blend level in gasoline for on-road use in automobiles. Previous to this isobutanol had been approved for on-road use up to a 12.5% blend. Patrick Gruber, Chief Executive Officer of Gevo, said “at Gevo we have been developing the markets for isobutanol containing gasoline, in particular to meet the demand for the “ethanol free” segment of the gasoline market. A 16% blend option will give our customers and partners an option for an even better product for on-road use.”
When the EPA news was released on June 18th, 2018, GEVO shares jumped over 400% hitting an intra-day level of $21.00
On May 10th, the company announced financial results for the quarter ended March 31, 2018. In summary, for three months ended March’18, Gevo’ continues to drive to achieve its commercial objectives and worked to extend the runway. Also, GEVO’ plan to drive down cost across the entire company has been working, and the numbers in its financials reflect the positive outcome of efforts.
Despite some significant anticipated and even unanticipated timing related challenges for the long-term goal of building large-scale plants, which take time to build out and generate cash, Gevo now has a clear pathway to turn profitable by addressing low carbon fuels.
Management intends to do it first with ethanol by improving its production facility in Luverne which will also benefit isobutanol production. Therefore, there is a path to profitability without incurring capex on building a large isobutanol and hydrocarbons plant.
Key highlights for the quarter and subsequent critical events included:
- Gevo continued to benefit from the results of its ongoing efforts to reduce its overall cash burn which contributed to the decline in loss from operations of $2.2 million in the first quarter of 2018 compared to the same period in 2017.
- Sales for the products increased by 47% in the first quarter of 2018 compared to the same period in 2017, primarily due to increased production of ethanol and distiller grains.
- On April 3, 2018, Gevo announced the appointment of Tim Cesarek to the newly created position of Chief Commercial Officer, who brings over 20 years of experience in strategic and commercial transactions, with 15 years in the field of renewable resource-based fuels and chemicals.
- The Environmental Protection Agency (“EPA”) has published a rule allowing for a 16% blend of isobutanol in gasoline for on-road use. The comment period is now closed. The EPA is expected to finalize the approval in the coming months. A 16% isobutanol blend in gasoline would provide the same oxygen content in gasoline as an E10 gasoline and provide the other value-added benefits such as low Reid Vapor Pressure or RVP, higher energy density, high octane, and low water solubility.
- ASTM International gave final approval for an increase of blend rates for alcohol-to-jet fuel from 30% to 50% in mixtures with conventional petroleum-based jet fuel.
- The Company recently announced that it would affect a 1-for-20 reverse stock split previously approved by the Company’s stockholders at an annual meeting held on May 30, 2018. The 1-for-20 reverse stock split will be effective as of the close of business on June 1, 2018, and the Company’s common stock will begin trading on a split-adjusted basis on Monday, June 4, 2018.
The market is positive about that fact that the company continues to gain commercial traction with isobutanol, isooctane, and jet fuel. The company is expected to finalize one or more of these contracts. In fact, Gevo is one of the few biofuel producers that have real data and operating experience gained from a commercial production facility. This data and expertise are competitive advantages for the company as it discusses offtake arrangements with potential customers and strategic partners.
Moreover, from an industry’ perspective, it is becoming clear that the world marketplaces are being pushed to achieve low greenhouse gases or carbon index, that’s referred to as CI. The marketplace is starting to sharpen the focus around that carbon value, that CI, particularly in the EU and in California.
To summarise, Gevo’ technology is robust and futuristic, the company is selling the product, and it needs to build out the business platform. Analysts tracking the stock are excited about the news coming out of the company and think more is set to come over the near to medium term.
About the Company: Gevo’s strategy is to commercialize biobased alternatives to petroleum-based products to allow for the optimization of fermentation facilities’ assets, with the ultimate goal of maximizing cash flows from the operation of those assets. Gevo produces isobutanol, ethanol and high-value animal feed at its fermentation plant in Luverne, Minnesota. Gevo has also developed technology to produce hydrocarbon products from renewable alcohols. Gevo currently operates a biorefinery in Silsbee, Texas, in collaboration with South Hampton Resources Inc., to produce renewable jet fuel, octane, and ingredients for plastics like polyester. Gevo is committed to a sustainable bio-based economy that meets society’s needs for plentiful food and clean air and water.
Gevo’s technology and cost structure enable high specialty product margins while targeting colossal fuel and chemical market:
First Quarter 2018 Results:
- Revenue: Revenues for the first quarter of 2018 were $8.2 million compared with $5.6 million in the same period in 2017. During the first quarter of 2018, revenues derived at the Luverne Facility related to ethanol sales and related products were $8.2 million, an increase of approximately $2.7 million from the same period in 2017. This was primarily a result of increased ethanol production and distiller grain prices in the first quarter of 2018 versus the same period in 2017.
- Profitability: The net loss for the three months ended March 31, 2018, was $2.5 million, compared with a net loss of $5.9 million during the same period in 2017.
- Liquidity and financial flexibility: The cash position at March 31, 2018, was $7.0 million, and the total principal face value of the outstanding debt was $16.7 million.
Key risk factors:
- The company needs the capital to expand, achieve revenue targets, and then become cash flow positive. Therefore, management’ ability to improve Gevo’s cash flow profile as the company goes forward would continue to remain a critical stock sensitivity factor.
- The positive outcome of the company’ plans for Luverne and its positive impact on burn and margins
- Company’ ability to increase the number of customers and strategic partners who have a strong interest in this product and market.
- Gevo’ ability to leverage these relationships to get its business built out.
- On Monday, June 18th, 2018, GEVO was at $9.80, on volume of 11M shares exchanging hands. Market capitalization is $12 million. Current RSI is 74.57
- In the past 52 weeks, shares of GEVO have traded as low as $3.23 and as high as $19.20.
- At $9.80, shares of GEVO are trading above its 50-day moving average (MA) at $6.74 and below its 200 days moving average at $10.51
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