Initiating coverage of FutureFuels (FF) at Outperform
Ian Gilson, CFA
We are initiating coverage of FutureFuels (FF) with an Outperform rating and a price target of $16.00.
FutureFuels is a manufacturer, seller and provider of specialty chemicals to the chemical industry. The company is also a producer of Biodiesel and biodiesel blends.
The company was formed in October 2006 by the acquisition of Eastman SE from Eastman Chemicals. FutureFuels was listed on the NYSE on March 8, 2011. Manufacturing of chemicals and the production of biodiesel occurs in Batesville, Arkansas, on a 2200 acre area on the White River in north central Arkansas. About 500 acres is used by the plant, which has a modern rail transportation yard and all the necessary waste water treatment facilities.
The biodiesel production plant can produce nearly 60 million gallons of bio fuel a year. Part of this is blended with petro-diesel (B2 containing 2% biofuel and B5, B10 and B20) and then sold and part is sold as is (B100). Some is used internally. As a blender the company receives the $1.00 a gallon federal credit.
The chemical business is solidly profitable. There are two major customers, P&G and Arysta LifeScience North America. In both cases the revenue growth is limited. The other chemicals grew at over 60% in 2011.
The valuations of the sales, earnings, and book value are in line with other profitable, high growth, specialty chemical companies.
We have initiated coverage with a price target of $16 and an Outperform rating.
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