Novozymes (NVZMF, news, msgs), a leader in industrial biotechnology, will benefit from efforts to promote energy independence and the bio-based society. It makes enzymes that convert cornstarch into ethanol, working closely with the U.S. Department of Energy and the National Renewable Energy Labs.
In 2005, it completed trials of converting agricultural residues like corn stover and other biomass. In the final phase, the enzyme cost of converting corn stover into fermentable sugars for fuel ethanol production was down to 1/30th the starting level. The current cost of the enzymes, more than $5 a few years ago, now is 10 cents to 18 cents per gallon of cellulosic ethanol.
This application of Novozymes enzyme technology can also convert other biomass, such as wood chips and switch grass, into sugars for fuel ethanol production. If we move toward the Bush goal of making cellulosic ethanol a competitive alternative to gasoline in the next six years, there will be more federal research grants for biomass conversion. (We will have to pay Danegeld to the Danes. The Copenhagen stock market has suffered not a whit from Muslim hysteria about the silly cartoons which were published in a Danish newspaper.)
The stock of this Danish firm, which trades as NZYMB in Copenhagen and as NVZMF-OTC, has risen nearly 14% since the State of the Union address and another 18% since I recommended it to my paid subscribers. We are holding it, not selling it.
The company's annual report for 2005 out Jan. 24 (they are fast!) reported operating and net profit both rose 11%. So it is not just about the Bush initiative or oil alternatives.
Sales in 2005 were up 5% (about 28% of sales are in North America, where the dollar strength hurt.). The level of operating profit margins is high, 19.2% (vs. 18.2% in 2004). Return on invested capital is also high, at 19.3% (vs. 17.4%).
NVZMF does not just make enzymes to burn corn in your car. They make enzymes for industrial processes ranging from laundry detergent additives to antibiotics, from alcohol- or cheese-making to recycling, from sewage treatment to makeup additives, from antibiotics to cloth treatments.
Some warning signs Danes are full of green zeal, some of it annoying, and the Novozymes annual report is a masterpiece of cant and clichés. For all the pieties about recycling, hiring women and making the workers happy, there is a dark side to Novozymes. It perpetrated not one but two pollution messes in the U.S, one involving nitrates and the other untreated sewage. No doubt there were similar episodes elsewhere.
Novozymes is busy suing another competing Danish firm, Danisco (DNSOF, news, msgs) and its U.S. subsidy Genencor in U.S. courts over alleged patent violations involving this great ethanol-conversion opportunity. Genencor is also being funded by U.S. money for making ethanol from non-food sources as well as corn stover. Danisco, unlike Novozymes, has a U.S. following and is covered by analysts; Novozymes is covered only by Danes. The market, though, seems to be more impressed with Novozymes, whose stock is behaving better.
For 2006, Novozymes set itself some serious targets: growth in sales and operating profits of 7%-9%.
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