All Fuels & Energy (OTC-BB: AFSE) Creates Substantial Value in Ethanol Industry
All Fuels & Energy (OTC-BB: AFSE), a company focused on ethanol production, alongside companies like Green Plains Renewable Energy (GPRE), and Valero Renewable (VLO) is taking advantage of the ethanol industry’s downturn to consolidate production facilities and leverage its expertise to drive results in the coming years.
While the ethanol industry may still be experiencing some headwinds, All Fuels & Energy (OTC-BB: AFSE) takes advantage of consolidation and restructuring opportunities within the industry. The move could position the company favorably with a portfolio of production facilities operating at a higher efficiency than the competition.
Ethanol Prices appear to be Bottoming Out
The ethanol industry was rocked in 2007 and 2008 when corn prices rallied and ethanol prices faltered, resulting in large losses and several high-profile bankruptcies. But with about 35% of the corn crop now dedicated to ethanol, the two commodities appear to be trading in tandem and both have rallied more than 20% over the past six weeks.
The improved pricing has helped increase ethanol producers’ profit margins, while the new correlation should help avoid any repeat of the industry’s crisis. After all, market participants are now well-aware that if prices don’t move in tandem, there could be another round of bankruptcies and a cut in supplies that would affect both commodities.
AFSE Brings Increased Efficiency and Risk Management to the Industry
With all of the bankruptcies occurred in 2007 and 2008, there are many opportunities to make cheap acquisitions in an industry ripe for consolidation. All Fuels & Energy seeks to buy these plants at bargain prices and implement low-cost capital improvements designed to improve efficiency and unlock value. Then, as the industry turns, they will be well-positioned.
Currently, the company is in negotiations to purchase an operating ethanol plant located in the Midwest United States. After executing the definitive purchase agreement, it is expected that a closing would be held within 30 days. And with the exclusivity period ending in the middle of September 2010, many investors anticipate the plant coming online within three months.
Shareholders Could See Significant Value
All Fuels & Energy may not be producing ethanol quite yet, but its pending acquisition and strong expertise in the industry could make it a compelling play. With the industry already on a path towards a turnaround, this stock could see significant value being unlocked over the longer term as ethanol prices continue to rise.
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