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  • Can Ceres Gain Traction In Agricultural Chemicals? 0 comments
    Jul 31, 2014 4:52 PM | about stocks: CERE

    (click to enlarge)Ceres Inc. (NASDAQ: CERE) is a California based agricultural biotech company, which develops seeds for crops that can be used as renewable bio-fuel and other bio-energy products. The company uses advanced plant breeding techniques and biotechnology research to develop crops like sweet sorghum, switch grass, high- biomass sorghum and miscanthus, which are then processed to produce ethanol.

    The Agricultural Pipeline Looks Healthy

    Ceres released its Q2 results (ending February 2014)) for fiscal 2014, which saw the sorghum seeds planted in November 2013 in Brazilian fields becoming ready for harvest. The pipeline is progressing on stage for evaluations in July in which about 65 percent of the sites are expected to produce good or excellent results.

    In March 2014, Ceres raised $20.8 million by a follow up equity offer, infusing much needed liquidity for funding operations in this fiscal year, which saw public grants declining. The total revenue for the six months ended February 2014 declined to $1.3 million from $3.0 million last year.

    Cutting Costs Is Critical

    Government grants more than halved and product sales also reduced by 10 percent in H1 2014 compared to H1 2013. Though the company spent $7.9 million in research and development, it managed to reduce overall operating expenses by 12 percent. Net EPS improved to $0.61 in H1 2014 from $0.64 in H1 2013.

    Ceres also gets revenue from licensing out its genetic technology (seed and plant breeding techniques) to seed companies for use in rice, soybean, sugar beets and corn. Recently the company has started evaluation of biotech traits in sugarcane which is expected to be out in H2 2015. Opportunity for a high yielding sugarcane crop is bright with 11 million hectares of fields in South America alone, where Ceres has about 45 evaluation sites.

    Though the project pipeline of the company has shown promise, it has not translated into financial performance. The revenue has declined gradually over the last three years to $5.5 million. The net loss has also been close to $30 million in the past two years and the same is expected to persist in the current year.

    The stock price has fallen from $15 in early 2012 to $1 in late 2013. Further decline in revenues in H1 2014 has taken the stock price to below $1. The stock closed at $0.69 on July 1, 2014 and does not look like it's going up anytime soon. Positive news like partnerships with seed manufacturers for licenses, new government grants and tax incentives can create some investor confidence.

    Conclusion

    The biofuel industry looks like a particularly long-term bet where bio-fuels become an alternative to fossil fuels when the reserves start dwindling. Ethanol is currently mixed with fossil fuels to improve efficiency. So ethanol producing crops will witness more demand in the near future. Ceres' sugarcane based seeds and crops, which are expected to yield results in 2016, might be a significant development for the company and needs to be tracked closely.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: CERE
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