australian renewable fuels

Company: Australian Renewable Fuels (ARW $1.60) - Buy

Valuation: $1.25

12 Month Price Target: $2.05

Share Price Performance:



Reason For Update:

Presentation by CEO, Darryl Butcher at Euroz


Quick Comment:

As follow up to the presentation update given by the company yesterday, we have noted some of the key points and provided a sensitivity analysis around valuation.


ARW is on the cusp of first production. We remain positive about the events that lie ahead and maintain our Buy recommendation.

Investment Case:

As noted previously, the largest single variable in any biodiesel project is selling price. For ARW a 1c move in the selling price affects the valuation by ~3%. Below we have presented a sensitivity analysis based on two variables, selling price and future plant additions.


Current valuation has been conducted in all cases by averaging three metrics: 7x EPS, 4.5x EV/EBITDA and a discount rate in the NPV of 11.5%. Valuation of growth plants conducted using NPV only.


Details:

Initial two plants (44 ml each) to be commissioned in the next 4-6 weeks located in Bunbury and Adelaide


Total construction costs for both plants, A$36m. Our full year EBITDA estimate (at $0.95 selling price) is $25m


Tallow, the predominant feedstock


Exclusive five year feedstock agreement in place with Gardner Smith in each location


Long term off take agreement with Godiver (large European trading house) for 120ml (3 plant equivalents)


Exclusive arrangement with high quality technology provider, Energea of Austria


Three further plants to be rolled out in Australia, a number in New Zealand and further (yet to be announced) initiatives are in waiting.


ARW owned 32% by Amadeus


Head office and management located in WA