BGC bridge global capital management limited

Well, at some point we really need to sit down and think about...

  1. 752 Posts.
    Well, at some point we really need to sit down and think about what is driving the share price for this stock.

    First we need to consider how the share price has fallen from $1.50 to 25 cents.

    Now at the time of the float, the new Biofuels industries looked very profitable. There was a real prospect that NFL could be earning 50 cents a share within 18 months of the float.

    Then the price of Palm Oil was rising, and for a while it even rose to the point that some new Biofuel companies were not looking like making any money at all.

    There was also the performance of Aussie Biofuel companies like ARW and ABJ which had risen after the float then crashed as the companies failed to both produce and sell Biofuels with Tallow as a feedstock.

    In contrast, the NFL price fell after the float and was trading down at $1 by the end of March. The Palm Oil price reached the maximum by about the middle of the year, with the Share Price down at about 55 cents.


    Now by this point, almost every share bought in the float had been sold, most had been sold several times. Most of the shares are now being bought and sold by speculators rather than people who actually believe in the future of the Biofuels industry.

    So from July onwards the price of Palm Oil has generally fallen, but so has the share price, so how has this happened?

    Simple really, the speculators buying at 55 cents into a falling market gave up when the price fell to 45 cents ... the next group of speculators buying at 45 cents give up and sell at 35 cents and the process continues until we get the "penny stock" investors buying and selling.


    The more I look into the company, the more I am convinced they are going to do well. If you listen to the 6th September commentary by John Hewson you will see that they are focusing on the prospects of the company over the medium term, say 3 - 5 years, rather than on either the short term feed stock or share prices.

    But does any of this guarantee that the share price will rise ... unfortunately no ... because the people who bought at 25 cents can still sell at 20 cents, and so it could continue.


    The same sort of share buying and selling will occur, of course, when the share price starts to rise. The people who bought at 25 cents will be happy to sell at 30 cents because they have gained 20%. People buying at 30 cents will be happy to sell at 40 cents and so it will continue.

    I guess that I am saying that in the short term the share price is not likely to be a true reflection of the value of the company. I still believe that 10 cents a Litre is a reasonable prospect for a well run Biofuel company, and this would be about 20 cents a share.

    As for John Hewson's medium term, that is hard to predict. That could be when they have built 6 additional 300,000TPA plants in Singapore in addition to the existing 3 200,000 TPA plants in Singapore, but the end result is dependent on how they raise the money for the additional plants.


    And what will start the price rising? Well once another new Biofuel company starts producing Biodiesel and making money, the interest will be back on NFL ... so keep an eye on AAE, SBI and MBT, especially the last two which have actually build Biodiesel plants in Malaysia.


 
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