Reduced cash-flow forecasts for 2013 and uncertainty about next year have been negatively impacting buyer interest in ethanol plants, said Mark Warren, partner and CFO, Ascendant Partners, Inc., Greenwood Village, CO, in a presentation at the Fuel Ethanol Workshop, June 10-13.
Warren noted that many in the industry anticipate cash calls and that some banks are limiting access to capital. Longer term, investors also are concerned about the uncertain future of the Renewable Fuels Standard (RFS), blend wall constraints, waning government support, and a downturn in the demand for gasoline (down from a peak in 2007).
While values for ethanol plants had been increasing since 2009, recent sales have shown declining values for top tier ethanol plants. They are now trading in the $1.10-$1.25 per gallon range with weaker plants trading at $1.00 per gallon or less. In 2012, plants were trading at about $1.35 per gallon.
Market access and operational efficiency will drive greater value in ethanol plants, Warren said. He added that ethanol facilities with strong grind spreads (due to favorable origination and outbound markets) generate stronger margin potential. “The efficient conversion of corn to ethanol with high yields, capacity utilization and low fixed costs maximize a plant’s ability to realize that margin potential,” Warren said, adding that these factors help determine an ethanol plant’s competitive position and generally results in higher earnings before interest, taxes, depreciation and amortization (EBITDA) compared to marginal ethanol production plants.
This week, Warren noted that crop estimates thus far this season are looking good, “but we’re not totally out of the woods yet.” He added, “If harvest meets expectations then this should be a positive for ethanol plant valuations going forward into next year.”