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GTL Resources

  • BY: Andrew Hore |
  • POSTED: 19/06/2011 |

Higher raw materials costs hit the profit of ethanol producer GTL Resources but it is still highly cash generative.

Revenues grew from $216.6m to $261.4m in the year to March 2011. Production rose 9% to 111m gallons and the ethanol yield improved. Pre-tax profit dipped from $14.5m to $12m – mainly down to a 26% rise in corn costs. GTL’s buying abilities managed to reduce the effect of the local market corn price increase, which was even higher. 

Demand for ethanol should continue to increase as the US government raises the percentage that can be blended with gasoline from 10% to 15%. Supply is unlikely to rise significantly in the near term. The blenders credit, which is to encourage ethanol use in fuel, is likely to be reduced but it does not appear that it will be stopped altogether.

Fuel is not the only potential use for the ethanol GTL produces. The plan is to diversify into food and biochemical products. One example is zein protein, which is used as a coating for confectionery, pharmaceuticals and packaging. Ethanol and water can be used to extract zein protein from corn flour. A pilot plant is making sample of zein protein.

Net debt has fallen by $14.4m to $83.4m at the end of March 2001. House broker Cenkos forecasts a further fall to $63m this year and to $42m by the end of March 2013. The debt is with the main operating subsidiary Illinois River Energy and it is non-recourse to GTL. Even so, the reduction in debt will not do any harm to GTL’s strategy to acquire other ethanol facilities.

GTL wants to buy other ethanol production facilities. It makes financial sense to acquire rather than invest in a new plant. 

At 72.5p a share, GTL is valued at £23.2m. Cenkos forecasts a profit of $13.1m this year, which puts the shares on less than six times 2011-12 earnings.

Download the June 2011 edition of AIM Journal at

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