Will the investment boom in ethanol from corn feed the bulls ?

Aventine Renewable (AVR : 38.94-4 44% 11:34am 06/29/2006 which launched this week at US$43 saw 3 Mn shares change hands - priced at the top end (revised upwards from US$37 intitially and the IPO increased by 1 MN to 8MN shares diluted the intense interest in ethanol producers from US corn.

Verasun Energy (VSE) priced at $23 a share on June 14 were down 8% to $39.20 on Thursday. Aventine Renewable Energy buys virtually all of the Ethanol VeraSun produces. This evidently produces a conflict especially as Aventine starts to increase its own production of ethanol. VeraSun has informed Aventine that the distribution deal will end in March 2007.

Aventine only produces less than 150 million gallons of ethanol a year on its own. Revenues from ethanol production lwere $120 million, approximately 20% of annual revenues.

Archer Daniels Midland Co. (ADM ) the largest ethanol producer in the U.S. with annual production of 1 billion gallonsfirmed slightly to US$40.23.

Hawkeye Holdings , based in Iowa Falls, Iowa, recently filed to go public on NYSE and have not yet set terms or an estimated price range.They are expected to raise up to $350 million according to a regulatory filing this month. Terms have not been set for the offering which is scheduled to be underwritten by Credit Suisse, Morgan Stanley and Banc of America Securities LLC, according to the SEC Filing. The company plans to add 1 more plant a year to their current two plants to 3 in 2006 and 4 in 2007.

Current Hawkeye plants are Iowa Falls with annual capacity of 80 Mn. gallons a year,and their Fairbank, Iowa plant will soon be online with scheduled capacity of 100 million gallons a year.

The company are the 3rd largest ethanol producer in the US (employs 85 staff) and saw Q1 net income rise to US$6.8 million on revenue of US $27.7 million, compared with net income of US$1.4 MN. on total revenues of US$18 Q1 2005.

On May 11th 2006 Private equity firm Thomas H. Lee Partners took an 80% stake in Hawkeye Holdings which was said to value the ethanol maker at about $1 billion.

Big equity stakes are also held by in Aventine by Metalmark,(approx 40% holding) a private-equity firm established by former principals of Morgan Stanley Capital Partners (MS). Sioux Falls based Bluestem also has a substantial holding.

On any rational calculation producing ethanol from corn makes no sense - whilst imports are subject to traiifs and tax breaks and subsidies exist the economic case is still very edgy. In terms of energy consevation it is difficult to justify except on strategic grounds that it develops endemic energy production.

Will the boom in these IPO's continue ? No... but the demand and usage of ethanol for automotive power will grow, not as fast as it should, or it can, because it is contrary to the interests of the oilco's. Watch this Google video.