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Harris L. Berenholz, CFA
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I like analyzing stocks, especially small caps and micro caps. My firm, Carpe Diem Advisors, LLC provides investment ideas, research and analytical services. Before establishing my firm I was (for 18 years) a Managing Director of Invemed Associates LLC, a New York Stock Exchange member firm,... More
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  • International Fuel Technology ($IFUE) Is Now A Compelling Story 0 comments
    Mar 21, 2012 10:34 PM | about stocks: IFUE
    The company two primary product lines, DiesoLiFTTM 10 and the PerfoLiFTTMBD-Series , both using breakthrough technology.

    DiesoLiFTTM 10 is IFT's proprietary surfactant-based fuel additive formulation. The product has been scientifically proven to provide a significant improvement in fuel economy and a reduction in harmful emissions. In addition, DiesoLiFTTM 10 increases fuel lubricity provides detergency benefits and co-solves normal amounts of free water, which collectively reduce maintenance costs for the end user. The product is easy to use, only splash blending is needed, and its use has been proven to have no effect on fuel composition, make-up or standard specification.

    The PerfoLiFTTM BD-Series is a series of fuel additive formulations specifically developed to provide superior oxidation stability and deposit formation control to bio-diesel and bio-diesel fuel blends. These desirable product characteristics are well-documented through extensive independent laboratory and field testing.

    A report, by Stuart A. Brown, an award-winning science and technology writer and reporter (stuartfbrown.com) arrived at some important and compelling conclusions:

    · Users of DiesoLiFT in the railroad, trucking and other industries consistently report fuel savings ranging from 3% to 6% and higher, lower exhaust emissions and a reduced need for maintenance of fuel system components such as fuel injectors and fuel filters. The consistency of these results is noteworthy.

    · The body of test data supporting IFT's claim for DiesoLiFT's fuel-conserving properties is overwhelming. The project manager at the UK railway consulting firm Interfleet stated that the "fuel economy claims by IFT are irrefutable."

    · Laboratory testing for fuel economy is considered highly reliable because of the controlled conditions and the established procedures that are adhered to.

    · IFT's technology can potentially apply to every diesel engine in the world since diesel engines have injection systems that spray pressurized fuel into the combustion chambers and therefore can benefit from DiesoLiFT's ability to enable more efficient and cleaner combustion.

    · DiesoLiFT is a patented formulation comprising a complex mixture of surfactant detergent substances.

    · Because of its surfactant chemical formulation, DiesoLiFT cannot cause any harm to engine components

    · DiesoLiFT's benefits also extend to users of biodiesel fuels.

    · Improved combustion reaction reduces emissions of pollutants including carbon monoxide, unburned hydrocarbons (soot), and less of the climate-altering gases oxides of nitrogen (NOx) and carbon dioxide (CO2).

    I have been an investor in IFUE shares for a number of years (admittedly, I was early) and have added to my position recently.

    The commercializing of a destructive technology is a long, arduous process. (It took Xerox some 20 years to commercialize its breakthrough technology.) IFUE has developed unique, revolutionary additives for diesel and bio-diesel fuel that provide a number of important benefits to users. Being a small company, IFT has had to prove itself over and over again to convince end users of its claims. Prospective customers were initially skeptical, wondering "how a little unknown company could invent something, possibly THE "silver bullet", that the big companies have been unable to do?"

    Now after nine years, the company's products finally are being commercialized worldwide. Two major international chemical manufacturers have been contracted with to produce the product; key distributors have been and will continue to be signed up in major markets; and patents have been issued. Initial focus is on the rail industry but any industry using diesel fuel is a potential customer.

    The company is having great commercial success overseas because fuel prices are much higher there than in the U.S. and because marketing efforts can be more concentrated. In the U.K., for example, ATOC is railway industry trades group that initiated (and paid for) testing of the company's products and then shared the positive results with its members.

    What's different today vs. last year, or last 2-3 years, is that IFT finally has reached the tipping point of credibility in the marketplace. For five years prospective customers in the U.K. and Europe hesitated. As recently as last July, IFT had no rail customers and confronted unwillingness on the part of rail operators to even consider testing the product in the field. This, despite the voluminous data garnered from the lab and from field testing that document the cost saving, pollution reducing and engine life extension characteristics of the company's products. That all changed when East Midlands Rail, a large respected operator (and one of the successor rails to the British Railways System, that was privatized between 1994 and 1997) tested and then started buying. Since then, East Midlands has reordered product seven times. Recently, its parent company Stagecoach Group was again awarded the prestigious Carbon Trust Standard after taking tough action on carbon reduction. One of the initiatives it cited was "using an innovative fuel additive (i.e., International Fuel's) on East Midlands trains, which demonstrated a 4.4% improvement in fuel economy".

    Thanks to the success with East Midlands, IFT has commitments from over 20 other rail operators in the U.K. and Europe to commence field validation processes. There is no doubt that there is now a major industry-wide positive paradigm shift in sentiment toward the company and its products.

    As far as competing technologies….there aren't any. Extensive work with the rail operators and with Interfleet (a world renowned rail consultant) has confirmed that "there is no one out there with a fuel additive for fuel economy other than IFUE……period!"

    Bio-diesel (especially in Brazil) is another potentially huge market opportunity.Last June, International Fuel received a purchase order to supply PerfoLiFT BD-4 to Petrobras, a $139 billion (in revenues) company (the third largest energy company in the world). Affiliation with Petrobras could mean substantial revenues for International Fuel. It also provides the company with the credibility necessary to call on other potential customers. PerfoLiFT BD-4 is part of the PerfoLiFT BD-Series of proprietary IFT fuel additive formulations that provide superior oxidation stability and deposit formation control in bio-diesel fuel blends. A few weeks ago the company received its largest order ever for the product from a European-based biodiesel production division of Cargill.

    Bio Capital, one of the largest bio-diesel producers in Brazil, is in final testing of PerfoLiFT BD-7. Here, too, an expected successful outcome should result in orders. International Fuel is currently negotiating with the country's largest rail operator to start field tests. Oxiteno a major Latin American chemical company (part of Ultrapar, with $28 billion in revenues) is interested in an exclusive manufacturing and distribution rights deal to sell IFT's products to industrial users of diesel fuel in Brazil and other South American markets under a royalty arrangement. Once consummated, this deal could also generate additional commercial opportunities for International Fuel throughout Latin America.

    The company's products are gaining recognition as one of the top performing technologies for bio-diesel stabilization. They have received the coveted "No Harm" certification from the German-based Association for the Quality Management of Bio-diesel (AGQM) under its "No-Harm and Efficiency" program. This certification is the international standard in the bio-diesel industry due to the demanding requirements necessary to obtain such certification and, in many countries, this is necessary before entering the market.

    The company is at a key inflection point for explosive growth, but there is no way of predicting the timing of both initial and reorders. Current indications are that sales next year could climb to $24 million (or higher) from a possible $5 million this year (up from an estimated $500,000 last).

    Breakeven is about $8 million. On $24 million in sales, I think the company could earn $5 million (pretax), or around $.04 a share. A $44 million tax loss carry forward will shelter earnings.

    It seems to me that International Fuel's stock risk-reward ratio is especially attractive for investors, given the sales momentum and the

    • enormous commercial business opportunities
    • extensive patent portfolio
    • experienced management , including a Nobel Laureate, Sergio Trindade, who heads research and maintains important business contacts in Brazil
    • prospect of positive announcements over the next few months

     

     

    Harris L. Berenholz,CFA

    Disclosure: I own IFUE shares and have been retained by the company as an independent consultant

    Disclosure: I am long OTCPK:IFUE.

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