Best stock to invest in – From Fuel To Fudge | Alternative Energy Stocks



Best stock to invest in

by Debra Fiakas CFA

This week the last reminder of the renewable fuels business that was
once
called Solazyme
will be gone.  The old Solazyme has
abandoned the goal of producing renewable fuels using the oils from
algae.  Instead, under a new name TerraVia, the company is directing
its algae cultivation and harvesting knowhow toward growing edible
algae for food and personal care products.  To make the change
complete the old stock symbol ‘SYZM’ gives way this week to a new
trading symbol ‘TVIA.’

No doubt there is more than just a little hope in Terra Via’s
boardroom that investors will forget the many troubled years trying
to wring diesel fuel from algae.  According to the last annual
report, Solazyme took in $585.7 million in equity capital to
bankroll its algae-to-fuel tank business plan.  There is also
$202.5 million in convertible debt that will need to be paid off or
converted. Unfortunately, its operations reported $609.9 million in
losses since inception, leaving the company with a $46.5 million
deficit.  It is going to take quite a bit of fancy algal fudge
to fill that gap.

Of course, there are numerous food products that could be developed
based on nutritionally rich algae.  Algae is about 50% protein
has about as much protein as rice or peas.  In September 2015,
the company introduced an algae protein product called AlgaVia that
contains 64% protein along with other good-for-you elements such as
fiber and amino acids.  Microalgae are used to convert sugars
into oils and proteins.  The mature microalgae are then
harvested, washed, dried and milled into a fine powder.  The
company touts the value of the powder for ready-to-drink beverages,
sauces, or baked goods.  A cracker, for example, made with
AlgaVia could have twice the amount of protein.

In early May 2016, TerraVia announced a deal with Bunge Ltd. (BG: 
NYSE) to launch a line of sustainable specialty feed
ingredients.  The joint venture is going after the aquaculture
market first with a whole algae product called AlgaPrime DHA. 
A supply agreement has already been worked out with a large
aquaculture feed supplier, but Terra Via has kept quiet on the
terms.  However, the company did suggest that the supplier
would begin lacing its fish feed with AlgaPrime beginning yet in
2016.

Make no mistake TerraVia has not given up on commercial grade algal
oils.  Unilever has chosen the company’s oils for its Lux
soap.  Algal oils have great public relations value.  Unilever’s
Lux
is vegan and petroleum-free, providing Unilever with
marketing value to reposition this time honored product.


TerraVia also has its own personal care product line.  The
cosmetics retailer Sephora S.A.
is distributing TerraVia’s
Algenist
line of anti-aging and color correcting
products.  QVC with its multimedia marketing platform and ULTA Beauty stores also sell the
Algenist line.
There is also a strong sustainability argument to make for tapping
algae for use in the human and animal food complex.  The large
quantities of land, water and fertilizer needed for field crops are
unnecessary for algae cultivation.  Algae can be grown in what
many call ‘reactors’ with a much smaller footprint than are required
to harvest the equivalent amount of protein from grain crops. 
(Personally, I hope edible algae producers come to their senses and
change this name as well.  Who really wants to eat something
from a reactor?)

The enthusiastic case for algae does not appear to have been a
comfort for TerraVia investors disillusioned over the company’s
continued losses.  The stock has steadily traded down from a
52-week high of $3.73 set in May 2015.  Of course, some
shareholders might remember the company’s initial public offering in
2011, after which the stock traded up to an all-time high of
$26.31. 

So far the Unilever deal may offer the most promise for significant
revenue. TerraVia has agreed to supply at least 10,000 metric tons
of algal oil for use in Unilever’s Lux soap and other personal care
products.  Some have valued the supply deal at $200 million
over the next few years.  The key to whether the shipments will
generate a profit for TerraVia hinges on products yields. 
TerraVia plans to produce the algal oil for Unilever in a facility
in Brazil constructed jointly with Bunge Global Innovation next to
Bunge’s sugar cane processing plant.  After beginning
construction in 2012, the plant came on line in 2014 and reach full
capacity in 2105.

Bunge provides the sugar-cane based sucrose for TerraVia’s hungry
algae.  Corn feedstock might be an alternative.  Thus
production costs for the company’s algal oils are likely to be
highly dependent upon sugar and corn commodities.  Sugar prices
have recovered from lows set in 2015, but still remain well below
highs set in early 2011.  TerraVia’s production for Unilever
may get off to good start with relatively economical sugar ‘feed’
for its algae.  Coupled with production of algae for the
AlgalPrime DHA product that TerraVia is producing in another joint
venture with Bunge, TerraVia may be moving nearer a profitable
production level.

It is not likely that shareholders will be long distracted by name
changes.  Solazyme or TerraVia.  Fuel or fudge.  Like
always shareholders are looking for performance.  The next
financial reports from TerraVia may need to offer clear evidence of
commercial progress.

Debra Fiakas is the Managing
Director of
Crystal Equity
Research
, an alternative
research resource on small capitalization companies in selected
industries.

Neither the author of the Small Cap
Strategist
web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein.

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