Growth for producers of bioethanol

I.n the current discussion about electric cars, their existence has fallen a little behind, but they offer combustion engines the opportunity to improve their CO2 balance: we’re talking about biofuels. They play an increasingly important role in achieving the climate specifications in the transport sector. Companies like Mannheimer Cropenergies benefit from this. In the past, however, manufacturers of biofuels such as ethanol have been very vulnerable to political developments. The EU’s Green Deal and the more ambitious emissions targets are creating optimism in the industry. It remains to be seen how the stricter long-term emissions guidelines and the pandemic-related restrictions will affect business in the near future. With the recent sharp rise in the number of infections, uncertainty has also increased.

With an annual production capacity of 1.3 million cubic meters, the Südzucker subsidiary is Europe’s leading ethanol manufacturer. At a total of four production sites in Germany, Belgium, Great Britain and France, neutral alcohol and technical alcohol (ethanol) are obtained from grain and sugar beet; food and animal feed are produced as a by-product. In addition to the production of sustainable fuel, classic applications such as in the beverage or cosmetics sector play a role, albeit a subordinate one. Since the beginning of the corona pandemic, the demand for ethanol for disinfectants has risen sharply, but could not nearly compensate for the lower fuel demand during the lockdown. After the lockdown, the company benefited from an increase in car travel compared to public transportation.

While in the past financial year the highest turnover since the company was founded in 2006 was recorded at 899 million euros, optimistic forecasts are now rather cautious. “Compared to the previous record year, a significant decline in sales and operating profit is expected for the current financial year,” says the annual report. For 2020/21, the company’s management expects sales of 850 to 900 million euros – provided that there are no more mobility restrictions over the course of the financial year and that the robust demand for ethanol continues.

Cropenergies achieved an operating profit of 104 million euros in 2019/20. This corresponds to earnings before interest, taxes, depreciation and amortization (Ebitda) of 146 million euros. For the current financial year, the Management Board is even expecting an operating result between 110 and 140 million euros, which corresponds to an Ebitda of 150 to 180 million euros. According to the company, the reason for this is the high demand for renewable ethanol and the sharp rise in ethanol prices. A look at the current profit development gives cause for hope: Profit rose in the second quarter to 31.5 million euros compared to 21.1 million euros in the second quarter of the previous year. The operating result rose in the same period thanks to significantly higher ethanol sales to 42.6 million euros compared to 28.6 million euros in the same period of the previous year. With an equity ratio of 74 percent, the company is solidly positioned. Cropenergies has 455 employees.

The price of the shares listed in the Prime Standard recovered after the slump in March and reached an all-time high of EUR 16.48 on September 21. Since the beginning of the year, the price has risen by 21.3 percent. Recently, however, the share has lost value and is currently at EUR 13.32. This gives the company a market capitalization of 1.2 billion euros. With a price-earnings ratio (P / E) of 14.2, the paper is comparatively cheap. For this key figure, the price of the share is set in relation to the earnings per share determined or expected for a comparable period; earnings estimates by analysts are often also included. The KGV can provide an indication of over- or undervaluation of the paper.

Overall, the biofuels market has recovered from the mobility restrictions in the spring. The share of competitor Verbio has risen impressively since its low in March and most recently reached the highest value since the IPO at EUR 20.80. Since the beginning of the year, the paper has gained 77 percent in value. The Cropenergies shares are 69.2 percent owned by the parent company Südzucker AG, 5.2 percent are held by the Süddeutsche Zuckerrüben-Verwertungsgenossenschaft and 26.4 percent are in free float. In the 2019/20 financial year, Cropenergies paid a dividend of 0.30 euros per share. Three Bloomberg analysts recommend buying the stock, one recommending holding it.


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