Print This Post
Biodiesel Tax Credit in Jeopardy; NBF Wilting
My previous report relating to Nova Biosource Fuels, Inc (NBF) indicated doubts about
1.the renewal of the biodiesel tax credit and
2.management’s ability to bring the complex start up issues of their new plant to a successful conclusion. Both matters have become more questionable since then.
A report by AgWeb.com reads in part as follows:
“Note: The farm bill will not include a one-year extension of the biodiesel tax incentive program, which is due to expire at the end of 2008. One of the reasons for the exclusion is the cost of the extension was raised to $537 million, in part due to the energy bill signed into law last December which included a biodiesel mandate. The Senate Finance Committee is expected to include the tax extension in a tax extenders bill, but the timing and fate of the tax extenders bill is murky.”
Meanwhile, the price of NBF stock has dropped below a dollar, indicating serious doubts by the market as to the company’s viability. NBF became a bit of an (expensive) hobby for me over the past 18 months. My mistake was failing to recognize that the company’s very attractive business plan had some steep operational hurdles to jump before become realized. In such situations it is fine to own some shares. But a substantial investment should generally wait for proof of the pudding. Better to pay more with less risk. I’ve been taught this lesson before but apparently I did not learn it properly. And I have paid the price.
The game is not over. As the prior post notes, NBF recently reported progress toward their end goal. They may get their act together in Seneca and start generating the spectacular cash flow the business model suggests is possible. I may have sold out the bulk of my position at exactly the wrong time. But if that proves to be the case, I will happily buy it back with less risk at a higher price.
Tags: peak oil energy investments
Print This Post
7 responses so far ↓
1 Peregrina // May 2, 2008 at 2:16 am
I regularly see signs in public pronouncements, including from the government, that recognize the difference between non-grain biofuels and those that are grain-based. That said, the pronouncements have NOT come from congressional committees, where they need to locate. In your conversations with NBF management, do you get enough information to be confident of your opinions, or is it a vague feeling? Nothing wrong with vague disquiet, but I do give it a differing weight. If NBF cannot maintain its program without present subsidies, will it fold outright, or be bought out? Lastly, is there hard information on how damaging the pump failure was?
Thanks
2 Jim Kingsdale // May 2, 2008 at 7:20 am
Peregrina - my conversations with NBF management are few and far between and they don’t tell me much. They know they are limited by law in disclosing facts. I judge them on facts. One is the lack of knowledge and concern by top management when I have questioned them about the tax credit. Either they are not plugged in or they do not understand the critical importance of it to their business model or they think there isn’t anything they can do about it or they are buying into some general “don’t worry” sorts of feelings that tend to be out there in the analyst community. Whatever their motivations, their attitude is not comforting to me.
Secondly, we have seen a lack of operational management at the top. J.D. McGraw, who was President until recently, is a financial engineer, as he readily admits. His replacement indicates there are operational issues that are not being handled to satisfaction. The fact that he has been replaced by a board member with only a part time attention to the company’s business is problematic and indicates they have not planned ahead to replace J.D.
Finally, the stock price is a judgement by the investing community which I take seriously.
Otherwise, I don’t know anything specific.
3 Jim Kingsdale // May 2, 2008 at 7:24 am
I would also add that the company should be doing a better job of keeping the public informed of developments at the Scott plant in regard to the pump problem and in regard to the progress of the Seneca plant. I fault them for keeping investors in the dark. The only inference one can take is that things may not be going as well as they want. If we see a big jump in the stock price without public disclosure watch out of insider trading problems.
4 Jim Kingsdale // May 2, 2008 at 7:35 am
Final comment: investors should be aware that NBF has been drawing down its bank line of credit to finance the buildout and startup costs of the Seneca plant (which they have publicly announced). In a sense this is a “bet the company” strategy because if the plant does not spew out biodiesel and cash flow pretty much on schedule, the bank could force a sale of the company, which might not leave much for stockholders. That’s why it is so critical that the Seneca plant move forward without major problems, something that NBF management has not yet demonstrated they can make happen. It is really all about management and unfortunately management has shown itself to be an unproven quantity thus far.
5 Robert Blumberg // May 2, 2008 at 9:55 am
Jim—if the price of oil continues to rise, do you still think that can offset a termination of the tax credit?
6 Jim Kingsdale // May 2, 2008 at 10:45 am
Rob - that’s a very good point. I do think eventually the tax credit will not be critical for NBF, assuming they can get from here to there.
7 eddie kaye // May 2, 2008 at 1:18 pm
Any thoughts on Syntroleum (SYNM) ? They have a joint venture with Tyson called dynamic fuels that seems to have a similar business plan to NBF, as well as a patented Fischer-Tropsch tecnology that can be used to produce synthetic liquid fuels from coal, gas and biomass.
Leave a Comment