Piper Jaffray’s Monthly Biofuels Update (GPRE)

Piper Jaffray is out with an analyst note this morning, where it takes a look at value in the biofuels space due to partnerships. The analysts said, “The partnerships announced this month reflect three broad trends within the industry: First, migration of clean tech companies toward markets with higher margins (personal care, consumer products) may open up near term opportunities for revenues while production costs are reduced by development teams. The second reflects the need for cellulosic hydrolysis projects to reliably source the enzymes and feedstock. The third is retrofitting corn ethanol plants with "bolt-on" processes to co-feed cellulosic materials in an effort to speed commercialization of cellulosic processes.” They also noted Ethanol’s current crush margins, saying, “The crush margins reflect an upward-sloping margin trend that started in 2H09 that will likely be bolstered by new enzymes. Gains in efficiency metrics were highlighted in a USDA report indicating that 1 unit of fossil energy input results in 1.9-2.3 units of energy output, corresponding to a 30% reduction in fossil fuel usage and a 5% yield increase over 2004 levels. The relatively healthy margins have cooled M&A activity in the space as owner-operators are holding their more profitable assets. Record ethanol exports indicate lagging domestic demand as producers' shipments make up for short cane production in 1H10. Exports ytd in 2010 are 125 MM gal versus 113 MM gal in all of 2009.” The Piper analysts closed by saying, “Our favorite biofuels idea remains Green Plains Renewable Energy

at a $20 price target based on 7x FY11E EV/EBITDA. We believe that the price of GPRE shares has not reflected the earnings power presented by organic capacity expansion and longer-term margin trends. In addition, GPRE is poised to acquire ethanol assets should the climate become more amenable for acquisitions. Because, in our view, Green Plains Renewable Energy has potential for various upside scenarios, we reiterate our Overweight rating.” See Some of the Top Moving Indexes