Mirabaud £20 price target!!4 Feb 2011 12:25
Price : 436.25p
Target : 2000p
Ethanol Update
Market Cap: £305m
12 January 2011
BUY
PDX has announced that the installation at Pacific Ethanol continues to confirm the stability, quality and viability of the Group’s Ethanol
Reactor System (‘ERS’). The Company has also confirmed benefits around cycle times which enable PDX to offer a third solution to the market for which the fee per gallon is twice the basic proposition. We have changed our estimates to reflect this which leads to upgrades to our numbers. We re-iterate our BUY recommendation and increase our price target to 2000p.
Year
2008A 2009A 2010A 2011E 2012E
Key Points:
Sales EBITDAS (£000s) (£000s)
455 -6,452 45 -5,800 128 -8,648
10,124 485 40,155 22,793
Pre-tax (£000s)
-7,067 -6,925 -9,069 -1,088 21,427
EPS PER (p) (x)
-11.5 -37.8 -10.6 -41.1 -12.4 -35.2
-1.6 -280.6 30.6 14.3
EV/Sales (x)
660.5 6652.0 2349.9 29.7 7.1
EV/EBITDAS (x)
-46.6 -51.9 -34.8 619.9 12.6
 Following the Group’s first Ethanol Reactor System (‘ERS’) installation in Q4 2010 at Pacific Ethanol’s 40m gallon Boardman plant, the Group has provided an update on the performance of the installation.
 Operating data has given the Group further insight on the technology’s impact within a full scale operating environment. To this end, the Group now anticipates that it will have three (previously two) different ‘packages’ for the ethanol industry:
o Optimisation Package – this is the Group’s basic offering which allows customers to produce the same amount of ethanol with a significant reduction in costs by improving yields and reducing other plant operating costs such as energy. The Group has re-iterated its US$0.02 fee p/gallon guidance for this package.
o CycleTime Package – this is a new offering which is based on what the Group has learned about the system in a full scale operating environment. It is essentially the Optimisation Package utilising the technology’s ability to reduce cycle times. This allows more cycles to be run within a given time period thereby allowing the ethanol plant to increase its capacity. We understand the ERS reduces cycle times by 8 – 16%. The Group has guided US$0.04 fee p/gallon for this package.
o Performance Package – the ERS allows Ethanol plants to increase the corn content per cycle leading to a further boost in capacity over and above that due to cycle times. The Group believes that the fee p/gallon is likely to be significantly higher than the other two packages.
 PDX believes that c50% of plants will have the downstream capacity to enable the CycleTime package to be implemented in a relatively short timeframe. For those plants that do not, PDX believes that capex is likely to be relatively small compared to the gains achievable.
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