by Mark Henwood
Twelve months ago biofuels were dominated by companies producing ethanol from corn and sugar cane. The situation is evolving with a growing number of public companies using bio-oil or bio-waste energy sources to compete with a broader range of fossil fuels. In addition to ethanol producers we now have public biodiesel producers and bio-gas producers. To reflect this progression we have renamed our index “Biofuels” and expanded it to include companies that use bio-waste, biomass, corn, sugar cane, sugar beets, or bio-oils to produce biodiesel, ethanol, or methane.
As a first step in refining the index we reviewed the market and our database to identify public companies with significant exposure to biofuels. We then subjected the 77 potential companies to our standard PurePlay screens to identify the constituent companies. Sixteen companies passed our energy source/product, exposure, size, liquidity, exchange, and business type screens. We have removed Sunopta (STKL) from the index because of their very small (and decreasing) business exposure to ethanol. Five biodiesel producers were added: Biopetrol (B2I.DE), Brasil Ecodiesle (ECOD3.SA), Gushan (GU), Nova Biosource (NBF), and VERBIO (VBK.DE). Two biogas producers were added: EnviTec Biogas (ETG.DE) and Schmack (SB1.DE).
Sixteen companies are insufficient to construct a properly diversified (5/50 rule) modified market capitalization index so the index continues as an equal weight tracking index. We expect more companies will enter this area to compete with increasingly expensive transportation and gaseous fuels. We also note that efforts to produce fuels from biomass, rather than bio-waste or bio-oil, have not yet produced a company able to pass our index screens. In our view a breakthrough is needed to propel this sector beyond the confines of its current resource limitations.
PS – by bio-oils we mean either plant or animal derived oils.