Ethanol group in expansion drive
Article Date: Aug 01 2005Renova Energy, which supplies ethanol for motor fuel in the Midwestern USA, plans to boost annual production from six million to 100 million gallons by 2010.
London-headquartered Renova, which raised £7 million at 69p in June with an AIM float handled by broker Bell Lawrie, was spawned by another group, Melrose Resources, to take advantage of official US encouragement for American motorists to switch to petrol blended with ethanol, as being better for the environment and for Republican-voting farmers seeing a profitable by-product from their corn. The company, whose operations are based in Wyoming, negotiates annual supply contracts from local farmers and provides a distribution network in the Rocky Mountain states for retailers, who can obtain a 51 cents (30p) a gallon sales tax rebate for blending it with standard petrol.
Chris Thomas, Renova's British executive chairman, says a 30 per cent ethanol blend requires no engine modifications and is a competitively priced product. Production involves a simple and inexpensive process of brewing and distilling - 'like making moonshine spirit during Prohibition'.
Thomas claims significant economies of scale, which would facilitate the hefty capacity increase he plans.Renova, which turned a near-£500,000 loss into a £32,000 pre-tax profit in the year to March 2004, expects to report pre-tax profits of around £420,000 for 2004-05.
With some respectable institutional backing, Renova shares have already risen to 90p. As a niche play, whose existing distribution network constitutes a significant barrier to competitive entry in its existing markets, it could replay a strong nerved punt.
This story is from Growth Company Investor, the independent voice on fast-growing companies. Subscribe today for the latest AIM recommendations.
