Share Name Share Symbol Market Type Share ISIN Share Description
Biofuels Corporation LSE:BFC London Ordinary Share GB00B00VD693 ORD 1P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  +0.00p +0.00% 1.50p 0.00p 0.00p - - - 0.00 05:00:10
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
- - - - 0.74

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04/9/2009
03:13
jabuk: Sep 1 2009 The Journal. THE boss of one of Europe's largest biofuel plants says he is still confident it can become a successful venture after a torrid few years which saw it taken over by its bankers after running up debts over £100m. The Biofuels Corporation of Seal Sands, on Teesside, was opened by Tony Blair in a blaze of glory in 2006 and heralded as the shining light of a low-carbon future. But one year later it had racked up debts of over £100m and was taken over by its banker Barclays. It is now operating at "well under half" of its capacity and is concentrating its efforts on refining low-cost used cooking oils to ensure it makes money, having cut its workforce from 50 to 35. Chief executive Sean Sutcliffe says the company has recently been hampered by changes to legislation, but says it is now well-placed for a successful future. "We are currently focusing on making high-quality biodiesel for the UK market using low-cost, used cooking oils from across the UK and Europe. "Our problems were exacerbated by changes to the Renewable Transport Fuels Obligation following the Gallagher Review last year. "We are currently operating at well under half of our existing capacity. "But as the amount of biofuel that has to be used in a fuel increases over the coming years we will be increasing our production. "We are a good business with a solid future, making good quality, environmentally friendly fuel." In April 2008, the Renewable Transport Fuels Obligation was introduced, requiring all petrol and diesel sold in the UK to contain at least 2.5% biofuel. But the Gallagher Review proposed the rate of increase of the percentage of biofuel used should be slowed due to negative effect planting land with fuel crops was having on food prices. However the Government it still intent on hitting the target of 3.5% by 2010, with the percentage increasing in following years. In 2003 the Biofuels Corporation announced it was creating the world's largest biofuel plant on Teesside making fuel from rapeseed, soya and palm oil. Three years later this vision became a reality when the £43m plant came on line and in June 2006 it was officially opened by Tony Blair But it soon became apparent Biofuels Corporation was having difficulties and it later revealed it had lost around £50m on an earlier attempt to hedge the company's trading risks. As it debts soared its share price tanked and in autumn 2007 it was delisted from the Alternative Investment Market and taken over by Barclays. Barclays Ventures, which now owns the business, declined to discuss the business.
17/4/2007
11:19
quidzinn: .... Thanks for the "advice" gents ... just to let you know I sold the 50k (bought @ 15.12p) on Friday 13th @ 15.5p and sold another 50k (bought @ 14.173p) today @ 15.1p making me a clear £540.27 profit .... Q quidzinn - 4 Apr'07 - 14:10 - 36120 of 36215 edit Doc, Look at the chart over any recent period - plenty of opportunities for an s.p.q.r. in BFC as I have done on several occasions since the middle of 2006. Q the_doctor - 4 Apr'07 - 14:14 - 36121 of 36215 "Look at the chart over any recent period" Looks like more down than up! magpie59 - 4 Apr'07 - 14:23 - 36122 of 36215 That game is over now quidzinn. Forgot your charts. volume has dried up and whilst this may still bounce between 15p and 17p, with the spread you will make squat or more likely lose. Each to their own I guess. Edit: You can sell for 14p now. david77 - 4 Apr'07 - 15:54 - 36123 of 36215 quidzinn - you can either value a company on the basis of its assets - an investment trust or property company for example where the assets are greater than the market cap (share price x number of shares) - for BFC, the assets are plant worth £50m at most less debt - best part of £100m - so nett assets are MINUS £50m or £1/share, or on the basis of its earnings - is the company making a profit justifying the current share price? - BFC is currently making a loss and unlikely to earn anything in the near future. I would be selling BFC shares now for whatever I could get 'cos the offer will be down very soon.
04/4/2007
14:54
david77: quidzinn - you can either value a company on the basis of its assets - an investment trust or property company for example where the assets are greater than the market cap (share price x number of shares) - for BFC, the assets are plant worth £50m at most less debt - best part of £100m - so nett assets are MINUS £50m or £1/share, or on the basis of its earnings - is the company making a profit justifying the current share price? - BFC is currently making a loss and unlikely to earn anything in the near future. I would be selling BFC shares now for whatever I could get 'cos the offer will be down very soon.
13/3/2007
16:54
beta_adjusted: fludde: you may not be able to trade out whilst the shares are suspended, but if they are suspended they aren't coming back imo. You have to wait until the shares are finally delisted (max 6 months under AIM listing rules) at which point your bet is closed on the basis of an artificial share price which reflects the value returned to shareholders. In the meantime as a shorter you earn interest (admittedly nominal) on your position so you make small money. Closing makes no sense if you believe the company is finished. IMO Barclays are likely to perceive the current value of BFC as less than its plant. The business model clearly does not work at this point in time: BFC are actually scaling back production because a number of their contracts are unprofitable! Profitability is almost entirely dependent on the relationship between oil-prices and input costs. Input costs have soared due to shortage of crops and the oil price has fallen. Essentially profitability is a leveraged punt on an arbitrage between these prices. Clearly as more feedstock comes on line over the next few years this situation may change but there is no sign of it yet. Indeed, I'm reading there will be worsening shortages of soft-commodities in general for years to come which means increasing competition for existing land from different softs. The bottom line is, Barclays would only d4e if they could find a buyer for the plant and, quite rightly, existing share holders would be wiped out; Barclays stand to lose the vast majority of their loan to BFC and will likely only be able to claw back some of any value left in the plant (and inventoried, assuming these do not spoil and can be economically shipped to a buyer). They would most likely be forced to sell at a significant discount to the plant's build cost. Call the build cost £40m, I reckon they might get £20m *if* they could get a buyer which I seriously doubt. That means a write-off of at least £80m - £90m to them imo (given accumulated interest costs as plant would take time to sell, costs of any redundancies etc.). So you can clearly see I think its a total gonner, hence my short position. turbotrader: why do you think it will rebound at 8p? some technical reason for it? do you know what the short interest is in BFC at present? B
14/10/2006
06:13
crosswire: Biofuels is back - shares up 50%Oct 12 2006 By Nigel Stirling, The Journal Shares in Biofuels Corporation have surged more than 50% since the alternative energy producer announced it has remedied production problems at its Teesside plant. Biofuels's share price slumped to an all-time low of 52p after it announced last month that production quality at its 250,000-tonnes-a-year bio-diesel plant - already Europe's largest - had fallen "marginally outside industry specifications." The company on Tuesday confirmed the technical fault that led to the production failure had been rectified and shipments to customers recommenced. It also used the announcement to confirm that it will press ahead with plans to build two 200,000-tonne plants alongside its existing facility at Seals Sands. The AIM-listed company's share price rallied to 79p at the close yesterday in the wake of Tuesday's announcements despite a series of setbacks at its existing plant before last month's disruption. Construction problems put back production by a year and added £13m of cost to the £43m final cost of the refinery which makes bio-diesel from soya, palm and rapeseed oil mixed with conventional diesel. But yesterday an analyst said the City had taken comfort from Biofuels's announcement that production was back on line. Will Wallis, an analyst at broker Numis, said: "The main reason for the share price rise is the solving of the production issue. "In the end it has only been a few weeks' production and it is normally the way with new production using new technology that there are early problems. "You could argue that the market over-reacted on the share price's way down and is over-reacting now on the way up." The company confirmed yesterday it was in discussions with investment bank JP Morgan Cazenove over options for financing the new capacity. The company, which in May raised £7.1m from institutional investors and is at the limits of its £93m banking facilities, refused to say yesterday whether it would issue more shares to pay for the new plants. Mr Wallis said: "The company has a significant amount of debt. If they were to finance it with more debt they would be very heavily geared. "They would have to think very carefully about taking on even more debt without raising more equity." Chief executive Sean Sutcliffe said: "The decision to move ahead with additional plant capacity comes as demand across Europe and in the UK for biodiesel continues to grow strongly, significantly outpacing currently available supply." Northern Business Daily
10/10/2006
20:34
ricky jackson: In my post of 29th September, I wrote, "There is now an excellent, but probably narrow window of opportunity to buy shares at a knock-down price; hence my Strong-Buy recommendation [on iii BB]." As expected, this window is now beginning to close. I seriously doubt that BFC's share price will ever see these levels again. If you're thinking of buying, I suggest you make your move tomorrow! Good luck to all holders. Shorters who continue to hold their positions are going to regret doing so - big time! Nomoney: "My predictions: 1) There may be one or two additional minor production hiccups as we progress towards nameplate capacity & uptime, but these will be "background noise" & not affect share price long term. 2) Financing is already guaranteed for plants2&3 ; negotiations probably taking place for best deals. 3) share price will be very volatile, but generally trend upwords. 4) Those who hold until plants 2&3 are in full production (guess end 2009) will be handsomely rewarded for their patience/faith. 5) Those who sold in past 2 weeks & who don't buy very soon will be heard saying "I could have bought BFC shares as a long term investment when they were well under £1 & didn't have the balls, now look at them !!" " I agree wholeheartedly! Smokey: "At full capacity the debt is very manageable and the banks will be falling over themselves to finance the two new plants." Again, I agree wholeheartedly! Indeed, I strongly suspect that this was the case prior to the AGM and this is likely the reason why the board appeared so confident at the AGM that long-term financing would not be an issue. I suspect that there won't be a rights issue and that the banks will provide long-term finance for the business, the next two plants included. Ricky.
02/10/2006
08:34
smokey 1o3: David77 First see comments below copied from David3977 on TMF & David116 on the iii website: So we are agreed on BFC being able to service the interest. Where we differ is that you believe Barclays will pull the plug before they can ramp-up to a point they can service loan repayments under a revised debt arrangement and I don't. Some say 50/50 chance,I say on the balance of probabilities 80/20 sure given the technology is not rocket science. As far as the short term is concerned the market will take its own course but to me that does not matter so much as I am not a short term trader. "The current oil price is around $60/barrel and I think the current feedstock price is around $450/tonne. They seem to be able to produce around 65% of nameplate production - around 16,250 tonnes/month. If you put those figures into my spreadsheet at http://homepage.ntlworld.com/stonebanks/biocalcs.htm (which is probably not be correct but its all we have) then I reckon they can earn about £685,000/month. Interest @ 8%/yr on £80m is £533,333/month. :-( 60% (15,000 tonnes/month) looks about breakeven to pay interest on £80m @ 8% - but doesn't reduce debt. I have no idea how accurate some of my assumptions are in the spreadsheet - fixed costs? On the centre pages of the Times today, there are reports and comments about British Airways and their £2.1 billion pension deficit - 44% of the market value of the company (BFC's £80m is 266% of today's market cap for BFC of £30m). BA are telling the unions that the company offers a one-off £500 million and the retirement age must go up to 60 for pilots and to 65 for other staff - so expect more mayhem for passengers next year. There are suggestions that BA is a bid target. "They are incredibly unlikely to be paying a dividend anytime soon" - why would you buy a share with no prospects of a dividend? 30 yers ago, I did a 1-year full-time management course, and we were told that a share is worth the discounted value of future dividends. No dividends = no value :-( I know that for years, Microsoft didn't pay a dividend yet their share price rose - but so did the company's earnings so there were prospects for generous dividends eventually. BA would be attractive to a bidder because of its lucrative landing slots at Heathrow, the world's busiest airport. "Those landing slots are priceless" one aviation analyst said. "Whoever controls those landing slots controls European aviation." --------------------- So, what does Biofuels have that might be attractive to a bidder? - and worth more than £80m so that shareholders get something? The company faces a refinancing at the end of the year. Who will take on the £80m debt from Barclays? What am I bid? --------- by Ricky Jackson: David, On what basis do you make your assumption that BFC will continue to run the plant at only 65% of nameplate capacity? This seems to be the core assumption on which the rest of your argument is based. BFC have already proved that the plant can run at 91% of maximum throughput capacity for a period of approximately 24 hours; so, surely it's not unreasonable to expect that they'll reach 86% of maximum throughput capacity (100% of nameplate capacity) on a continuous basis in the not-too-distant future. I'd be interested to see how your numbers look when they're producing 250,000 tonnes per annum. -------------- by David116 Ricky I believed in this story originally so I am sorry to see the mess that they are in brought on by the hedge contract that Barclays wanted and the failure to get the plant working on time. They would have survived either problem on their own (hedge + plant wkg, or plant delayed without the hedge) but not both. As the chairman said, they are in a commodity business and the lowest cost producers will survive. BFC have £80m tied up in their plant (ignoring shareholders) which is £320/tonne at 250,000 tonnes/year with an 8% interest cost of £25.6/tonne. BFC also need to think about repaying that debt before shareholders see anything. Let's say 8% in the first year - another £320/tonne at full output. D1 Oils have recently agreed to buy the lease of a site on Merseyside for £3m and reckon that they can get that producing 100,000 tonnes/year for another £8m. The capital tied up in that plant will be £110/tonne with interest cost of £8.80/tonne. BFC have a £340/tonne cost disadvantage compared with D1 Oils - assuming both plants are equally efficient - and the only efficiency that matters is £cost/tonne of material produced. Even if BFC get up to the target output very soon so that they can show Barclays (or any other bank) that the plant has produced at this rate for a couple of months, then Barclays may let them continue while Barclays are getting some return on their debt (but much less than the interest rate they would like) then they may let Biofuels struggle on, but I can't see shareholders getting anything. I wish shareholders luck, but unless Barclays write off £60m, and what are the chances of that? then I don't see a future for this company. Someone will buy the plant. It is worth £20m giving a cost/tonne not much different from that for D1 Oils' new plant if the new owners settle for the 65% output which has been demonstrated - but so far, for one month only. -------------
29/9/2006
13:26
nomoney: Posted on iii board earlier this afternoon: I've been quietly watching the reaction/opinion of posters on this BB & ADVFN to recent RNS & share price drop & thought that now is an appropriate time to add my perception of the RNS & AGM which I attended. Overall I was pleasantly surprised and very impressed by the BFC board's response to questions, approachability and professionalism which left me EXTREMELY CONFIDENT that: a) BFC is not going bust b) They are moving in correct direction c) they have the correct mix of technical and commercial experience/knowledge. To that extent that I have now topped up my holdings earlier this morning! Some AGM details: When asked to explain what was meant by "fallen marginally outside industry standards", the CEO & Technical Director explained that "marginal Glycerin traces" were found as "part of our testing regime". It was clearly stated that the levels were very low PPM (parts per million). The "temporary process" simply involves storing for a few days to allow glycerin to effectively settle in storage tanks ; then the output can be sold per correct quality standard. This explains why "we expect deliveries to resume progressively from next week". Meanwhile, the technical and commercial director were 100% confident of finding a permanent solution. Someone asked how confident the board were in obtaining favourable re-financing by the end of the year, which was a key concern regarding BFCs continuation as a going concern. The question was directed towards the finance director (sitting at RHS of table). As the questions was asked and answered, I watched the rest of the board's body language and facial expressions - not one of them flinched, glanced to another, or looked in the least bit worried. In fact, almost all of them immediately smirked, which told me everything I needed to know. For the record, the finance director's response was emphatic and delivered in a calm/confident manner, in that he had no concerns. I asked them if they were confident of meeting production levels to enable shipment of previously announced 2006 sales = 75,000 tonnes, given recent problems (see my previous posts for details of average monthly levels required) and were there any contractual penalties if they did not deliver? The commercial director responded by saying: a) they have a lot of flexibility in the contract and no penalties would occur. b) It is likely shipments will be delayed, however BFC have a good relationship with customers who fully understand problem and are willing to wait (the laws of supply and demand). Someone then complained that the graph on page 11 of recent analyst's presentation could easily be misinterpreted to mean that production levels had met targets in July (green area crossed dotted horizontal line). In fact the chart was 2 graphs, which was easily misread, or at worst misleading. The chairman/CEO responded, quite indignantly, that there was no intent to mislead. They stated that they could see how the chart could be misinterpreted, without the benefit of the words which accomplished the presentation to the analysts. Around this point, I raised my concern on BFC communications and the perception that BFC were trying to hide the true situation, whereas at the AGM a completely different perception was given (more positive). I gave examples of phoning BFC to ask dates/times of AGM and receiving no response and that BFC needed to improve PR - this was accepted. Indeed, after the AGM one of the board approached and thanked me for bringing up this point. Plant tour was very impressive, giving clear impression of a professional, well run organisation: a) 5 highly skilled, multitask operators, plus one maintenance employee per shift. 5 shifts overall. b) Output is based on menu selection from 3 feeds (Soya, Rape & palm), consisting of any combination such as 100% soya or blend of all 3. This allows BFC to adapt to market prices for raw material, which is a major commercial advantage. c) I asked employees off-line (while management not looking) if BFC were a good company to work for etc - emphatic answer = yes! d) High focus on safety and environmental control for plant. e) High automation. Last but not least, for those who still hold/believe, here is my personal opinion: A loss is only a loss when you sell. Be strong & hold thro till approx end Q1 2007 when new finance will be in place, production levels higher and more stable - guaranteed price will be much higher than today. Good luck to all ....
06/9/2006
10:40
pbracken: "It still baffles me how we can see for example a large number of buys and a small number of sells and the price drops!" That's because, EOC74 you are making the very common mistake of assuming that the share price of any company is a function of supply and demand. It most certainly is not. As any half-brained economist will tell you, the share price of companies is directly related to the value of a business, which in turn is a function of future income discounted for risk. A small change in the risk premium has a marked affect on the share price - and right now BFC is suffering an increase in the discount investors want for buying BFC shares, simply because more risk attaches to them. That may change of course - less percceived risk will cause the share price to rise. But shares are emphatically not like baked beans or mars bars, which ARE subject to the law of supply and demand. One final comment. It IS true that loads of buying can be associated with a share price rise - but that's only because the buyers are responding to a change in the perceived value of the business. In other words, buys and sells are consequences of market expectations, and not causes of share prices falling or rising.
30/7/2006
20:25
mr demolition: --------------- MORGAN STANLEY RESEARCH ----------------- Forwarded Message: Subj: BFC.L) Biofuels Corp. Plc Date: 28/07/2006 12:37:28 GMT Standard Time From: MATONGA To: roger.oscroft@waysidegroup.co.uk -- MI: Biofuels Corp. Plc: Leaving Difficult Times Behind ( Part 1 of 2 ) -- 05:39pm BST 27-Jul-06 Morgan Stanley (Diana, Luciano) BFC.L BFC/ MORGAN STANLEY RESEARCH EUROPE July 27, 2006 (BFC.L) Biofuels Corp. Plc Biofuels Corp. Plc: Leaving Difficult Times Behind Luciano Diana +44 (0)20 7425 4438 Morgan Stanley & Co. International Limited Allen Wells +44 (0)20 7425 4146 Morgan Stanley & Co. International Limited Initiating with Equal-weight-V. Biofuels has now commenced production of biodiesel, after suffering significant commissioning delays and cost overruns for its plant construction. We think that the new management is taking the right steps to make the company become a major player in the UK and European biodiesel markets. However, its highly leveraged balance sheet and limited operating history make an accurate valuation of the stock difficult at this stage. Good potential due to plant size and location. Biofuels operates one of the largest biodiesel plants in Europe, at 250,000 tons/year. We expect economies of scale in relation to feedstock sourcing and processing costs. Furthermore, the plant's location in Teesside, in the UK, is strategic as it is close to refineries and allows easy access to Northern European markets. However, it has a high level of debt ... Capex overruns of L16 million and the unwinding of a commodity hedge for L50 million have left the company with L80 million of short-term debt on the balance sheet. The debt is part of an on-demand facility of L95.2 million, which the company expects to renegotiate at the end of December 2006, implying a high level of credit risk. ... and short operating history. The company has just started production of biodiesel, and as such it is difficult to gauge product quality and pricing. The existing forward sale of 75,000 tons from future production between August 1 and December 31 bodes well for the near term, however the company needs to deliver on the order. The first major catalyst for the stock will be the debt refinancing at the end of December, in our view. Stock Rating: Equal-weight-V Industry View: No Rating ModelWare EPS actual: (Mar 2006) GBp (44) ModelWare EPS estimate: (Mar 2007) GBp (8); (Mar 2008) GBp 7; (Mar 2009) GBp 9 Share Price: GBp 119 (Jul 25, 2006) Target Price: NA Market Cap: (mm) GBP 54 ______________________________ FULL RESEARCH TEXT BELOW: Exhibit 1 Scenario Analysis Indicates an Unclear Risk-Reward at This Stage (Refer to PDF for chart/tables) Source: Morgan Stanley Research estimates -Our base case assumes that the Teesside plant is operating at its full 250,000-ton capacity by September 2006. This capacity would guarantee ~2.5% market share in 2010, with a 5.75% EU-blending obligation. We assume 2.5% long-term growth. We assume a biodiesel sale price at 45 pence/litre, declining to 42 pence/litre in the long term, versus current prices of L0.48/litre in continental Europe. We assume that the company will renegotiate its credit facility at the current rate of LIBOR plus 2.5%. -Our bull case assumes an additional 250k tons capacity built in FY09 in Teesside, versus 500k tons indicated as likely by management if the upcoming refinancing round is successful. We assume the same biodiesel prices and feedstock prices as in the base case, because we provide separate sensitivity analyses for those. We use an incremental CAPEX of L15 million for each additional 100k tons. -Finally, our bear case encapsulates downside risk with further delays in the plant obtaining maximum capacity and no further capacity expansion. We factor in the company's failure to re-negotiate existing debt facilities at the current rate, and we assume a higher cost of debt of LIBOR plus 4.5%. We re-use the same other assumptions as in the base case. See our industry report also published today: European Biodiesel: A Leveraged Play on Crude Oil Prices Summary and Investment Conclusion Biofuels Corp. operates a 250,000 tons per year biodiesel plant in Teesside, the largest in the UK. The plant was officially opened on June 30, 2006, and the company expects it to be operating at full capacity by September 2006, producing biodiesel catering to the UK and European biodiesel blending markets. We initiate coverage with an Equal-Weight-V rating. We think that Biofuels Corp. could be a viable play on the European biodiesel theme, due to its first-mover advantage, the expected economies of scale from its large plant, and the strategic location to access its target markets. However, its high level of financial gearing and its limited operational history make forecasting future cash flows and valuing the stock quite difficult at this stage. We identify two key issues in this equity story: Ability to refinance the L95.2 million credit facility. The company has a total of L95.2 million of on-demand debt, whose maturity has recently been extended to the end of December 2006. At that time, the company will discuss refinancing with its banks, taking into account requirements for growth, based on a longer track record of production and sales. We have assumed in our base case a successful re-financing of the debt at the current rate, and a conversion from short-term to long-term debt. We think this is a reasonable assumption given the market conditions, the company's position within the UK biodiesel market, and the commencement of on-spec biodiesel production. However, investors should be aware that there is the possibility of a failure in the debt renegotiation, which could potentially result in the company facing difficulties in remaining as a going concern. Ability to secure long-term off-take agreements. Biofuels Corp is only in the early stages of production, so the ability to sign off-take agreements for its product is key in the short term. The company has signed initial contracts to sell forward 70% of its 2006 output, and plans to sell the remainder "over the counter". The company indicates a sale price of 45 pence per litre for its biodiesel; however, we are assuming a more conservative 42 pence per litre, as we believe that the product will sell at a higher discount to better quality RME biodiesel made from rapeseed. We believe the successful ramp-up of production in Teesside in the autumn, the full delivery on the 75,000 tons forward sale and the refinancing of the debt facility at the end of December will be the key short-term catalysts for the stock. Fair value methodology and risks We value Biofuels Corp using a DCF-based model (see Exhibit 14), due to the limited availability of appropriate comparable companies. We use a cost of equity of 15% to reflect the start-up nature of the investment and a 2.5% long-term growth rate. Our base case yields a fair value of 70p, which implies downside potential of 41% from current levels. Our bull case implies 60% potential upside, and would require the company to expand its capacity. We assume a de-rating to our bear case of 50p if the company manages to re-negotiate its credit facility, albeit at a higher rate. Investment positives -Economies of scale. The plant has the potential to offer economies of scale in relation to processing cost reduction, compared with existing smaller UK producers. The ability to source large amounts of feedstock and processing materials on favourable terms will be an additional long-term competitive advantage, in our view. -Strategic deepwater port location. The plant is located in the deepwater port area of Teesside, which already hosts significant oil refining complexes and can provide good facilities for the import of vegetable oils and the export of biodiesel into continental Europe. -Feedstock flexibility. Margins have significant dependence on the feedstock mix used in the plant. The Biofuels Corp. plant's flexi-feedstock capability will allow the company to vary the feedstock to maximise margins (as long as quality standards are met). Exhibit 2 DCF Fair Value Shows High Sensitivity to WACC Assumptions (Refer to PDF for chart/tables) Source: Morgan Stanley Research estimates Investment risks -High levels of financial gearing. -Uncertainty on FAME pricing. Biofuels Corp will sell FAME biodiesel, which demands a EUR7-8 cent/litre discount compared with premium quality RME in Germany. There is currently poor visibility on FAME pricing elsewhere, as customers are taking early decisions on which product they actually want. We assume a sale price of 42 pence/litre, versus a price of 45 pence/litre as indicated by the company. -Residual execution risk. The company does not expect the Teesside plant to be at full capacity until September 2006, implying a level of residual execution risk. -Commodity and currency risks. The company plans to mitigate commodity and currency risks by putting in place long-term agreements with key customers and suppliers, and supporting them with hedging arrangements. Exhibit 3 Key Assumptions and Financial Summary (Refer to PDF for chart/tables) Source: Morgan Stanley Research estimates Exhibit 4 Share Price History Shows High Volatility (Refer to PDF for chart/tables) Source: Datastream, Company data, Morgan Stanley Research Business Model A single plant operation Biofuels' plant is one of the largest in Europe. The plant is capable of using a mix of feedstock, and Biofuels Corp. plans to operate it using a mix composed of soy, palm and rapeseed oil. As of July, the Teesside plant was operating at 65% of its 250,000 tons/year capacity, and the company expects it to be fully operational by the beginning of October 2006 (see Exhibit 5). The company is also in the process of commissioning a glycerine refining unit on its Teesside site. When operational, it will refine the crude glycerine by-product of the biodiesel production process into high-quality pharmaceutical-grade glycerine for re-sale. Pricing and customer structure The company is focusing on the European blending market, and plans to enter into long-term contracts to sell forward around 60% of its annualised biodiesel production to a portfolio of blue-chip customers including distributors and refiners across the UK and Europe. The company has forward sold 75,000 tons of biodiesel, over half of which will be exported to Europe. The company commented that all of its production to date had been shipped to customers at prices in line with its expectations of a FAME biodiesel sale price of 45 pence/litre, which represents, in the company's view, a ~5 pence/litre discount to premium rapeseed-based RME biodiesel sold within Europe. We estimate a RME sale price in Germany of EUR0.67/litre for 2006 reducing to EUR0.60/litre in the long term, as the effects of reducing tax incentives and increased supply are felt. The differential between FAME and RME is currently at ~5 pence/litre or EUR0.07/litre, in our view, which is in line with company guidance. This differential will fall over time as the RME biodiesel sale price falls and larger amounts of high quality FAME enter the market (see Exhibit 6). Options for capacity expansion Biofuels Corp's longer-term strategy is to capture 25% of the total UK market, which it expects to be 1.1 million tons by 2010, and to increase capacity with the construction of a second and third plant, once management is satisfied that the current plant is achieving maximum operating efficiency. Exhibit 5 2006-07 Production Ramp-Up (Refer to PDF for chart/tables) Source: Company data, Morgan Stanley Research Exhibit 6 FAME Differential Will Reduce Over Time (Refer to PDF for chart/tables) Source: Morgan Stanley Research estimates Exhibit 7 Potential UK Customers (Refer to PDF for chart/tables) Source: Company data, Morgan Stanley Research The additional plants are to be located on the company's existing Teesside site, will be of a similar scale to the existing plant, and will effectively treble production to 750k tons once both are operational. The company has the right to acquire up to three additional plant licences for EUR3.5 million in total from its technology provider, and plans to use contractor turnkey services to bring these plants online smoothly. Final decisions on this expansion will be made later in 2006. Commissioning issues Biofuels Corp contracted Energea, a small Austrian plant builder, to builds its Teesside plant, which was intended to become operational in September 2005 at a cost of L27 million. The commissioning process was hampered by the fact that the company's technology provider and main contractor did not have the capacity required to deliver such a major project, according to Biofuels. Following a number of announced delays and capex increases, the plant began producing biodiesel in February 2006, five months late (see Exhibit 8). A high level of debt financing required Biofuels Corp raised L30.9 million in a share placing in April 2005 due to higher-than-expected plant capex and working capital requirements, along with the initial unwinding of the commodity hedge. Following further delay announcements, these debt facilities were extended in December 2005 to L92.9 million to allow for increased plant costs, additional working capital, bank fees and the early repayment in full of the commodity hedge. These facilities were on-demand and repayable on June 30, 2006. The company negotiated in May 2006 an extension to December 31, 2006, and increased the total facility to L95.2 million. Biofuels Corp has now appointed debt financial advisers to assist in the refinancing of this debt and the financing of planned capacity expansion. The company also raised an additional L7.3 million in May 2006 by way of a share placing, which it used to provide additional working capital and finance the initial platform for the next phase of its growth strategy. According to our current assumptions on growth and profitability of the business, the level of free cash flow generated will be insufficient to repay the debt in the short to medium term (see Exhibit 10). Exhibit 8 Commissioning Issues (Refer to PDF for chart/tables) Source: Company data, Morgan Stanley Research Exhibit 9 Evolution of On-Demand Debt Facility (Refer to PDF for chart/tables) Source: Company data, Morgan Stanley Research Exhibit 10 Unlikely to Be Able to Repay Debt out of Free Cash Flow (Refer to PDF for chart/tables) e = Morgan Stanley Research estimates Source: Company data, Morgan Stanley Research Exhibit 11 Breakdown of Reported FY06 Exceptional Items (Refer to PDF for chart/tables) Source: Company data, Morgan Stanley Research Exhibit 12 Evolution of Debt Financing on Balance Sheet, 2005 (Refer to PDF for chart/tables) Source: Company data, Morgan Stanley Research Biofuels Corp could become a main supplier to the UK market Operating from its Teesside plant, Biofuels Corp is planning to sell the majority of its production into the UK market. Current UK capacity from operational plants is just 68,000 tons annually but we expect this will increase to over 500,000 tons by the fourth quarter of 2006, when the large-scale plants operated by Biofuels Corp and Greenergy Biofuels 'ramp-up' to full capacity, and we expect a total capacity of approximately 1 million tons by 2008. Based on the UK government's biofuels target of 5% by 2010, we expect total biofuels demand to be 1.1 million tons with the majority of this being biodiesel. EUROPE July 27, 2006 (BFC.L) Biofuels Corp. Plc Biofuels Corp. Plc: Leaving Difficult Times Behind Luciano Diana +44 (0)20 7425 4438 Morgan Stanley & Co. International Limited Allen Wells +44 (0)20 7425 4146 Morgan Stanley & Co. International Limited Initiating with Equal-weight-V. Biofuels has now commenced production of biodiesel, after suffering significant commissioning delays and cost overruns for its plant construction. We think that the new management is taking the right steps to make the company become a major player in the UK and European biodiesel markets. However, its highly leveraged balance sheet and limited operating history make an accurate valuation of the stock difficult at this stage. Good potential due to plant size and location. Biofuels operates one of the largest biodiesel plants in Europe, at 250,000 tons/year. We expect economies of scale in relation to feedstock sourcing and processing costs. Furthermore, the plant's location in Teesside, in the UK, is strategic as it is close to refineries and allows easy access to Northern European markets. However, it has a high level of debt ... Capex overruns of L16 million and the unwinding of a commodity hedge for L50 million have left the company with L80 million of short-term debt on the balance sheet. The debt is part of an on-demand facility of L95.2 million, which the company expects to renegotiate at the end of December 2006, implying a high level of credit risk. ... and short operating history. The company has just started production of biodiesel, and as such it is difficult to gauge product quality and pricing. The existing forward sale of 75,000 tons from future production between August 1 and December 31 bodes well for the near term, however the company needs to deliver on the order. The first major catalyst for the stock will be the debt refinancing at the end of December, in our view. Stock Rating: Equal-weight-V Industry View: No Rating ModelWare EPS actual: (Mar 2006) GBp (44) ModelWare EPS estimate: (Mar 2007) GBp (8); (Mar 2008) GBp 7; (Mar 2009) GBp 9 Share Price: GBp 119 (Jul 25, 2006) Target Price: NA Market Cap: (mm) GBP 54 ______________________________ FULL RESEARCH TEXT BELOW: Exhibit 1 Scenario Analysis Indicates an Unclear Risk-Reward at This Stage (Refer to PDF for chart/tables) Source: Morgan Stanley Research estimates -Our base case assumes that the Teesside plant is operating at its full 250,000-ton capacity by September 2006. This capacity would guarantee ~2.5% market share in 2010, with a 5.75% EU-blending obligation. We assume 2.5% long-term growth. We assume a biodiesel sale price at 45 pence/litre, declining to 42 pence/litre in the long term, versus current prices of L0.48/litre in continental Europe. We assume that the company will renegotiate its credit facility at the current rate of LIBOR plus 2.5%. -Our bull case assumes an additional 250k tons capacity built in FY09 in Teesside, versus 500k tons indicated as likely by management if the upcoming refinancing round is successful. We assume the same biodiesel prices and feedstock prices as in the base case, because we provide separate sensitivity analyses for those. We use an incremental CAPEX of L15 million for each additional 100k tons. -Finally, our bear case encapsulates downside risk with further delays in the plant obtaining maximum capacity and no further capacity expansion. We factor in the company's failure to re-negotiate existing debt facilities at the current rate, and we assume a higher cost of debt of LIBOR plus 4.5%. We re-use the same other assumptions as in the base case. See our industry report also published today: European Biodiesel: A Leveraged Play on Crude Oil Prices Summary and Investment Conclusion Biofuels Corp. operates a 250,000 tons per year biodiesel plant in Teesside, the largest in the UK. The plant was officially opened on June 30, 2006, and the company expects it to be operating at full capacity by September 2006, producing biodiesel catering to the UK and European biodiesel blending markets. We initiate coverage with an Equal-Weight-V rating. We think that Biofuels Corp. could be a viable play on the European biodiesel theme, due to its first-mover advantage, the expected economies of scale from its large plant, and the strategic location to access its target markets. However, its high level of financial gearing and its limited operational history make forecasting future cash flows and valuing the stock quite difficult at this stage. We identify two key issues in this equity story: Ability to refinance the L95.2 million credit facility. The company has a total of L95.2 million of on-demand debt, whose maturity has recently been extended to the end of December 2006. At that time, the company will discuss refinancing with its banks, taking into account requirements for growth, based on a longer track record of production and sales. We have assumed in our base case a successful re-financing of the debt at the current rate, and a conversion from short-term to long-term debt. We think this is a reasonable assumption given the market conditions, the company's position within the UK biodiesel market, and the commencement of on-spec biodiesel production. However, investors should be aware that there is the possibility of a failure in the debt renegotiation, which could potentially result in the company facing difficulties in remaining as a going concern. Ability to secure long-term off-take agreements. Biofuels Corp is only in the early stages of production, so the ability to sign off-take agreements for its product is key in the short term. The company has signed initial contracts to sell forward 70% of its 2006 output, and plans to sell the remainder "over the counter". The company indicates a sale price of 45 pence per litre for its biodiesel; however, we are assuming a more conservative 42 pence per litre, as we believe that the product will sell at a higher discount to better quality RME biodiesel made from rapeseed. We believe the successful ramp-up of production in Teesside in the autumn, the full delivery on the 75,000 tons forward sale and the refinancing of the debt facility at the end of December will be the key short-term catalysts for the stock. Fair value methodology and risks We value Biofuels Corp using a DCF-based model (see Exhibit 14), due to the limited availability of appropriate comparable companies. We use a cost of equity of 15% to reflect the start-up nature of the investment and a 2.5% long-term growth rate. Our base case yields a fair value of 70p, which implies downside potential of 41% from current levels. Our bull case implies 60% potential upside, and would require the company to expand its capacity. We assume a de-rating to our bear case of 50p if the company manages to re-negotiate its credit facility, albeit at a higher rate. Investment positives -Economies of scale. The plant has the potential to offer economies of scale in relation to processing cost reduction, compared with existing smaller UK producers. The ability to source large amounts of feedstock and processing materials on favourable terms will be an additional long-term competitive advantage, in our view. -Strategic deepwater port location. The plant is located in the deepwater port area of Teesside, which already hosts significant oil refining complexes and can provide good facilities for the import of vegetable oils and the export of biodiesel into continental Europe. -Feedstock flexibility. Margins have significant dependence on the feedstock mix used in the plant. The Biofuels Corp. plant's flexi-feedstock capability will allow the company to vary the feedstock to maximise margins (as long as quality standards are met). Exhibit 2 DCF Fair Value Shows High Sensitivity to WACC Assumptions (Refer to PDF for chart/tables) Source: Morgan Stanley Research estimates Investment risks -High levels of financial gearing. -Uncertainty on FAME pricing. Biofuels Corp will sell FAME biodiesel, which demands a EUR7-8 cent/litre discount compared with premium quality RME in Germany. There is currently poor visibility on FAME pricing elsewhere, as customers are taking early decisions on which product they actually want. We assume a sale price of 42 pence/litre, versus a price of 45 pence/litre as indicated by the company. -Residual execution risk. The company does not expect the Teesside plant to be at full capacity until September 2006, implying a level of residual execution risk. -Commodity and currency risks. The company plans to mitigate commodity and currency risks by putting in place long-term agreements with key customers and suppliers, and supporting them with hedging arrangements. Exhibit 3 Key Assumptions and Financial Summary (Refer to PDF for chart/tables) Source: Morgan Stanley Research estimates Exhibit 4 Share Price History Shows High Volatility (Refer to PDF for chart/tables) Source: Datastream, Company data, Morgan Stanley Research Business Model A single plant operation Biofuels' plant is one of the largest in Europe. The plant is capable of using a mix of feedstock, and Biofuels Corp. plans to operate it using a mix composed of soy, palm and rapeseed oil. As of July, the Teesside plant was operating at 65% of its 250,000 tons/year capacity, and the company expects it to be fully operational by the beginning of October 2006 (see Exhibit 5). The company is also in the process of commissioning a glycerine refining unit on its Teesside site. When operational, it will refine the crude glycerine by-product of the biodiesel production process into high-quality pharmaceutical-grade glycerine for re-sale. Pricing and customer structure The company is focusing on the European blending market, and plans to enter into long-term contracts to sell forward around 60% of its annualised biodiesel production to a portfolio of blue-chip customers including distributors and refiners across the UK and Europe. The company has forward sold 75,000 tons of biodiesel, over half of which will be exported to Europe. The company commented that all of its production to date had been shipped to customers at prices in line with its expectations of a FAME biodiesel sale price of 45 pence/litre, which represents, in the company's view, a ~5 pence/litre discount to premium rapeseed-based RME biodiesel sold within Europe. We estimate a RME sale price in Germany of EUR0.67/litre for 2006 reducing to EUR0.60/litre in the long term, as the effects of reducing tax incentives and increased supply are felt. The differential between FAME and RME is currently at ~5 pence/litre or EUR0.07/litre, in our view, which is in line with company guidance. This differential will fall over time as the RME biodiesel sale price falls and larger amounts of high quality FAME enter the market (see Exhibit 6). Options for capacity expansion Biofuels Corp's longer-term strategy is to capture 25% of the total UK market, which it expects to be 1.1 million tons by 2010, and to increase capacity with the construction of a second and third plant, once management is satisfied that the current plant is achieving maximum operating efficiency. Exhibit 5 2006-07 Production Ramp-Up (Refer to PDF for chart/tables) Source: Company data, Morgan Stanley Research Exhibit 6 FAME Differential Will Reduce Over Time (Refer to PDF for chart/tables) Source: Morgan Stanley Research estimates Exhibit 7 Potential UK Customers (Refer to PDF for chart/tables) Source: Company data, Morgan Stanley Research The additional plants are to be located on the company's existing Teesside site, will be of a similar scale to the existing plant, and will effectively treble production to 750k tons once both are operational. The company has the right to acquire up to three additional plant licences for EUR3.5 million in total from its technology provider, and plans to use contractor turnkey services to bring these plants online smoothly. Final decisions on this expansion will be made later in 2006. Commissioning issues Biofuels Corp contracted Energea, a small Austrian plant builder, to builds its Teesside plant, which was intended to become operational in September 2005 at a cost of L27 million. The commissioning process was hampered by the fact that the company's technology provider and main contractor did not have the capacity required to deliver such a major project, according to Biofuels. Following a number of announced delays and capex increases, the plant began producing biodiesel in February 2006, five months late (see Exhibit 8). A high level of debt financing required Biofuels Corp raised L30.9 million in a share placing in April 2005 due to higher-than-expected plant capex and working capital requirements, along with the initial unwinding of the commodity hedge. Following further delay announcements, these debt facilities were extended in December 2005 to L92.9 million to allow for increased plant costs, additional working capital, bank fees and the early repayment in full of the commodity hedge. These facilities were on-demand and repayable on June 30, 2006. The company negotiated in May 2006 an extension to December 31, 2006, and increased the total facility to L95.2 million. Biofuels Corp has now appointed debt financial advisers to assist in the refinancing of this debt and the financing of planned capacity expansion. The company also raised an additional L7.3 million in May 2006 by way of a share placing, which it used to provide additional working capital and finance the initial platform for the next phase of its growth strategy. According to our current assumptions on growth and profitability of the business, the level of free cash flow generated will be insufficient to repay the debt in the short to medium term (see Exhibit 10). Exhibit 8 Commissioning Issues (Refer to PDF for chart/tables) Source: Company data, Morgan Stanley Research Exhibit 9 Evolution of On-Demand Debt Facility (Refer to PDF for chart/tables) Source: Company data, Morgan Stanley Research Exhibit 10 Unlikely to Be Able to Repay Debt out of Free Cash Flow (Refer to PDF for chart/tables) e = Morgan Stanley Research estimates Source: Company data, Morgan Stanley Research Exhibit 11 Breakdown of Reported FY06 Exceptional Items (Refer to PDF for chart/tables) Source: Company data, Morgan Stanley Research Exhibit 12 Evolution of Debt Financing on Balance Sheet, 2005 (Refer to PDF for chart/tables) Source: Company data, Morgan Stanley Research Biofuels Corp could become a main supplier to the UK market Operating from its Teesside plant, Biofuels Corp is planning to sell the majority of its production into the UK market. Current UK capacity from operational plants is just 68,000 tons annually but we expect this will increase to over 500,000 tons by the fourth quarter of 2006, when the large-scale plants operated by Biofuels Corp and Greenergy Biofuels 'ramp-up' to full capacity, and we expect a total capacity of approximately 1 million tons by 2008. Based on the UK government's biofuels target of 5% by 2010, we expect total biofuels demand to be 1.1 million tons with the majority of this being biodiesel.
Biofuels share price data is direct from the London Stock Exchange
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