|Rentech, Inc. (RTK): Fertilizer business strong, Fischer-Tropsch value uncertain; Neutral - Goldman Sachs - February 12, 2008|
Key takeaways from 1Q are:
(1) EPS of -$0.09 excluding non-recurrings came in below our estimate of -$0.04 on account of higher than expected operating expenses.
(2) Guidance for the nitrogen business was increased to greater then $40 mn EBITDA for FY2008, from greater than $35 mn.
(3) Management reiterated that its Fischer-Tropsch technology is not solely for coal-to-liquids technology but is feedstock-agnostic.
The story here remains somewhat the same: the fertilizer business is strong but the value of the FT technology is uncertain. Management indicated that its technology is able to handle feedstocks other than coal and therefore can be cleaner than some may think (i.e., using waste or biomass). This may be true but, until there is material revenue from FT in the near term, the ultimate value of their FT technology is uncertain. We maintain our Neutral rating and continue to expect volatility in the shares. We are updating our FY0208-FY2010 EPS estimates to -$0.22, -$0.24, -$0.25 from -$0.24, -$0.27, -$0.28 to account for the latest quarter’s reported information and guidance. Our forecasts are not materially different but we have increased our EBITDA forecast slightly given the new guidance.
We are updating our 6-month target price to $1.60 (from $2.00). Our target price is based on a sum-of-the-parts analysis analyzing the nitrogen business and the potential value of the non-nitrogen assets. Our $42 mn FY2008 EBITDA for the nitrogen business at a 4.5 multiple plus an estimated value of $100 mn for the IP of the non-nitrogen assets drives an enterprise value of $290 mn, or about $1.60 per share.
(1) Inability to obtain funding could thwart its attempts to build a FT business,
(2) lower than expected fertilizer pricing.