Bitterfeld Ethenolysis And Nevada Ethanol Will Unlock New Value

Key Takeaways

• The ethenolysis plant's operation will enhance revenue through specialty chemicals for detergents and plastics industries by 2026.
  
• German greenhouse gas quota market recovery and regulatory amendments could improve net margins by increasing demand and prices.
  
• Operational challenges, market shifts, and regulatory changes are straining Verbio's margins and cash flow, requiring swift adaptation to improve financial performance.

Catalysts

Engages in the production and distribution of fuels and finished products in Germany, Europe, North America, and internationally.

• The completion and full operation of the ethenolysis plant in Bitterfeld by 2026 are expected to generate new revenue streams from high-value specialty chemicals for the detergents and plastics industries, enhancing future revenues.
  
• Stabilization and recovery in the German greenhouse gas quota market, driven by regulatory amendments expected to increase demand and prices for greenhouse gas quotas in 2025, have the potential to improve net margins.
  
• The resolution of technical issues and ramp-up at the Nevada ethanol plant, postulated to return to near full capacity utilization, is projected to contribute positively to earnings starting in fiscal year 2025-2026.
  
• Continued optimization and cost-out investments, focusing on existing operations rather than large capital expenditures, are aimed at preserving cash flow, which could improve net margins.
  
• Favorable market conditions for the biodiesel segment, particularly due to advantageous rapeseed oil pricing versus spot market rates, are expected to boost EBITDA, thus impacting overall earnings positively.

Verbio Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Verbio's revenue will grow by 9.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.9% today to 6.1% in 3 years time.
• Analysts expect earnings to reach €119.6 million (and earnings per share of €1.14) by about May 2028, up from €-29.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.1x on those 2028 earnings, up from -23.3x today. This future PE is lower than the current PE for the GB Oil and Gas industry at 19.5x.
• Analysts expect the number of shares outstanding to decline by 4.56% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.45%, as per the Simply Wall St company report.

Verbio Future Earnings Per Share Growth

Risks

• The technical issues and delayed ramp-up at the ethanol plant in Nevada, including the need for equipment repairs, are causing significant negative impacts on EBITDA, which may continue to affect earnings if not addressed promptly.
  
• Issues in the German greenhouse gas quota market, such as the oversupply of credits from fraudulent products, have depressed prices and affected revenue streams; slow recovery could continue to impede financial performance.
  
• The biodiesel production in Canada is impacted by a difficult margin environment and changes in incentive schemes, which could negatively affect revenue and profit margins if not adequately addressed.
  
• The transition from the blenders tax credit (BTC) to the production tax credit (PTC) in the U.S. biodiesel market could lead to margin pressures and affect earnings as price dynamics shift.
  
• Increased capital expenditures and investments in key projects, alongside a net debt position, necessitate careful management of cash flow and expenditures to maintain strong financial results; unanticipated delays or expenses could strain financial resources.

Valuation

• The analysts have a consensus price target of €14.967 for Verbio based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €17.0, and the most bearish reporting a price target of just €10.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €2.0 billion, earnings will come to €119.6 million, and it would be trading on a PE ratio of 8.1x, assuming you use a discount rate of 5.4%.
  
• Given the current share price of €10.66, the analyst price target of €14.97 is 28.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.