Syntroleum (SYNM) announced that it will be having its Q2 2013 conference call on Wednesday August 7th at 3:00 P.M Eastern Time. For a micro-cap company, SYNM has a lot to cover. SYNM's major asset is a 50% ownership in a joint venture with Tyson (TSN) called Dynamic Fuels. Year to date through 08/05/2013 Dynamic Fuels plant has produced 0 gallons of fuel, and has been in standby mode all year. With its main asset idle, one would expect SYNM to be having a very bad year...but it isn't. SYNM ended 2012 trading at $4.00, today, 08/05/2013, SYNM has traded as high as $7.18, a nearly 80% gain year to date. SYNM also has a P/E of 5.92 and 2013 earnings of $11 million, with a capitalization of only $62 million. How is that possible? It all has to do with the reinstatement of a "blenders' tax credit" that was passed early in 2013 and made retroactive to 2012. This effectively credited 2012 earnings in 2013.
Because SYNM is a microcap stock I had trouble finding analysts and estimates for Q2 2013. I view that as a good thing because it highlights how SYNM is pretty much ignored by Wall Street. Yahoo Finance has N/As for its estimates. We can however use past history, especially Q1 2013, as a proxy for the plant's earnings/losses during standby mode. The Dynamic Fuels plant has fixed OPEX of about $2 to $2.5 million per month, or $6 to $7.5 million per quarter. The Dynamic Fuels Plant lost $5.9 million in Q1 2013 while in standby mode, so my numbers may be a bit high. SYNM is responsible for 50% of that, so SYNM should show a loss of about $3 to $3.75 million from Dynamic Fuels. SYNM itself has expenses and lost $2 million in the Q1 2013, which should be a good estimate for Q2 2013 considering not much has changed. Putting the two together SYNM should show a loss of $5 to $5.75 million. SYNM has 9.6 million shares outstanding, so that should be a loss of $0.52 to $0.60/share. SYNM earned $1.15/share in Q1 2013, so it should still be showing a positive EPS YTD through Q2 2013. If market conditions persist and SYNM can restart the plant and finish the year with solid production numbers, 2013 can turn out to be a very solid year for SYNM.
Syntroleum's net income was $11 million and $1.15 per share for the three months ended March 31, 2013... the company reported an operating loss of $2 million...Equity in earnings have dynamic fuels for the quarter ended March 31 2013 was 6.7 million which includes 12.6 million is gains from the $1 tax credit that is 5.9 million from dynamic fields operating losses
Key Issues and Q&A:
1) The main issue that will almost certainly dominate the conference call is the status of the Dynamic Fuels plant. The plant has been in standby mode since late 2012, and was slated to restart in mid-late July. It is now August, and there has been no word as to the plant's condition other than the catalyst has been installed.
2) Economic conditions have been exceptionally strong, with RINs recently reaching a peak of over $1.40. More details as to the decision process that resulted in the plant being kept in standby mode should be expected. How was the decision made, and what needs to change to put the plant into production?
3) SYNM recently had trading halted and issued an 8-k regarding some unsolicited interest it has received from various sources. More details as to the who and what should be expected.
4) SYNM recently released an 8-k regarding a memorandum of understanding or MOU signed with another energy company regarding a potential gas-to-liquids or GTL venture. More details as to the who should be expected.
5) SYNM has a new catalyst installed that should boost the yield of ultra low sulfur diesel. SYNM may review the impact the new catalyst will have on the margins.
6) SYNM relies heavily on the current regulatory environment that has recently come under fire in Washington. SYNM may review the impact such events have had on its decision making process, and its expectations for RIN prices going forward.
8) SYNM has an insulating product called "phase change material." It is a pretty interesting concept and uses an endo/exotermic reaction in insulation similar to the physics principle that orange farmers use when they spray oranges in advance of a freeze. Any progress on this issue may be beneficial to the stock.
9) NTOIF.PK has released Q2 2013 earnings and this is a quote from its earnings report.
The market fundamentals remained favorable and we continued to make good progress on our entry into the North American market.
Buying SYNM would put an end to the lawsuits, and instantly provide NTOIF.PK with exposure and established contracts in the US. It is a win win situation for NTOIF.PK, so NTOIF.PK would a logical source of one of those "unsolicited" offers.
In conclusion, investors can feel pretty confident that SYNM will lose money in Q2 2013, its plant has been in standby mode, and the tax credit was accounted for in Q1 2013. The range of estimates covered in this article is for a loss between $0.52 and $0.60/share. SYNM will still have a positive EPS year to date through Q2 2013, and has a chance at a positive EPS for the entire year of 2013 if market conditions persist and the Dynamic Fuels plant returns to production. Additionally, many side topics are likely to be covered in the conference call, so investors interested in SYNM should listen in and take notes. This is a microcap stock with a lot of irons in the fire, and any positive or negative news can move the stock.
Disclaimer: This article is not an investment recommendation. Any analysis presented in this article is illustrative in nature, is based on an incomplete set of information and has limitations to its accuracy, and is not meant to be relied upon for investment decisions. Please consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice.