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Based in Thousand Oaks, California, Ceres (proposed CERE) originally scheduled a $110 million IPO with a market capitalization of $506 million at a price range mid-point of $22 for Thursday, February 9, 2012.

CERE has been re-scheduled for Thursday, February 16, 2012 at a price range mid-point of $16.50, and is one of three IPOs scheduled for this week including a 'cloud' company (see our IPO calendar).

When is a 'discount' not a discount?
The new price range mid-point of $16.50 is down 25% from the earlier price range mid-point of $22.

The new price range of $16 to $17 equates to an $83 million IPO with a market capitalization of $382 million, at the $16.50 price range mid-point.

No Meaningful Discount
Yes the price-to-sales ratio is down 25% to 53 from 70 but the price-to-book value decreased to 4.2 from 4.4, which is no meaningful discount.

The price-to-book value for development stage renewable companies is more important than price-to-sales, especially when 'sales/revenue' is derived mostly from government grants.

And we have no confidence in a continual flow of government grants for development stage renewable companies in this climate.

Compare And Contrast
The renewable biotech group is currently out of favor. The average price per share loss for the past three months in 13% and and all are hemorrhaging cash. See below.

The lower the absolute number in the negative price-to-earnings ratio, the more cash is being lost, relative to market capitalization. For example, -13 is worse than -21.

3 month

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

change in

Annualizing most recent qtr

Cap (mm)

Sales

Earnings

BookValue

TangibleBV

stock price

Ceres (NASDAQ:CERE)

$380

52.7

-13

4.2

4.3

Amyris (NASDAQ:AMRS)

$1,290

8.9

-7

6.3

6.3

-44%

Gevo (NASDAQ:GEVO)

$222

3.2

-5

2.2

2.2

10%

KiOR (NASDAQ:KIOR)

$1,230

n/a

-21

5.1

5.1

-21%

Solazyme (NASDAQ:SZYM)

$686

19.2

-12

2.7

2.7

1%

average

-13%

Summary
CERE is an agricultural biotechnology company selling seeds to produce renewable biomass feedstocks. 85% of revenue for the November 2011 three months came from research and government grants.

CERE is still very much of a development stage company.

Conclusion
We would still avoid CERE on the IPO. If it were a true price reduction to entice investors, the price-to-book value would have been decreased by more than 4.5% (which was to 4.2 from 4.4).

Competition
We are still concerned about CERE's principal competitors, which may include major international agrochemical and agricultural biotechnology corporations, such as Advanta India Limited, Dow Chemical Company (NYSE:DOW), Monsanto (NYSE:MON), Pioneer Hi-Bred -- DuPont (NYSE:DD), KWS and Syngenta (NYSE:SYT), all of which have substantially greater resources.

New Use Of Proceeds
CERE expects to net $72 million from its IPO at the $16.50 price range mid-point, allocated as follows:

  • Research & Development: $35.0million
  • Capital expenditures primarily relating to breeding stations, production facilities, systems and agricultural equipment: $10 million
  • Commercial activities, including increasing the number of sales and marketing personnel, expanding advertising and branding efforts and pursuing government approvals: $5.0 million
  • Working capital and other general corporate purposes, including seed production efforts and operating as a public company: $22.2 million.
Source: IPO Preview: Ceres -- When Is An IPO Discount Not A Discount?