Saturday, March 8, 2014

Renewable Energy Group (REGI)

Company Overview
Renewable Energy Group is a leading North American Biodiesel with a nationwide distribution and logistics system. They are focused on converting natural fats, oils, and greases into advanced biofuels and on converting diverse feedstocks into renewable chemicals. They use lower cost feedstocks that will not have any impact on the price of food unlike some of their competitors.

Company Financials
Stock price is currently at 70% of its book value. Cash and short term investment have been increasing since 2008. Short term debts have increased in the past year however with a current ratio of 3.54 the company will have no issue in paying off short term liabilities. Liabilities have increased during 2013 however that was due to upgrade costs of two bio-refineries. Net margins increased greatly over the past year from 4.28% in 2012 to 11.03% in 2013 ranking higher than 75% of companies in its industry. Return in equity has also been increasing from 29.23% in 2012 to 36.13% in 2013 ranking higher than 68% of companies in its industry.

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2013 Results
 In 2013 Renewable Energy Group sold 37% more gallons of biodiesel, increased revenue by 48%, increased gross profit to 16% from 6%, increased its adjusted EBITDA by 54%. Its 4Q13 operating highlights were listed as
-          Increased sales by 89.9% when compared to 4Q12
-          80.9% production increase compared to 4Q12
They announced in October spending of $30 million to further upgrade REG Mason City to allow the plant to produce high quality biodiesel from lower-cost raw materials like inedible corn, expected to be completed in 2014 and will not materially interrupt production. This upgrade follows REG Albert Lea biorefinery successfully completed in September; 4Q13 represented the first full quarter of flexible multi-feedstock operations at REG Albert Lea
Renewable Energy Group enhanced its distribution capability by completing a new barge-loading facility at REG Seneca, this compliments truck and rail shipping capabilities and enables a lower-cost method to ship biodiesel through inland waterway system
 In January Renewable Energy Group announced entry into industrial biotech and the renewable chemicals market with its acquisition of LS9, inc. REG Life Sciences now can convert diverse feedstocks into a wide range of valuable chemicals, a cornerstone investment for REG Life Sciences.

Source: Renewable Energy Group 2013 Annual Report

The cost of raw materials used as feedstocks are volatiles and results of operations could fluctuate substantially. Loss or reductions of governmental requirements for the use of biofuels could have a material adverse effect on revenues and operating margins, they believe that increased demand for biodiesel since July 2010 is directly attributable to the implementation of RFS2 which requires that a certain volume of biodiesel be consumed
In December 2013, total long-term debt was $27.15 million. Subjects them to potential defaults, could adversely affect ability to raise additional capital to fund operations and limits ability to react to changes in the economy/ biodiesel industry

Source: Renewable Energy Group Annual report 2012


Renewable Energy Group seems to have a good forward looking focus that is aiming at cutting costs to improve the company’s margins. In relation to its risk factors the long term debt of the company is an issue if there are changes within the industry or economy that the company needs to react to quickly like RFS2 which the company relies on for its demand of biodiesel fuels. Renewable Energy Group is in good financial health and it not yet selling at its book value. The stock seems to very volatile and would be one worth looking into when it takes another dip in price. 

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