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13 noviembre 2006

Historia de un chicharro megaburbujero

Seguro que, con este título, más de uno se da por aludido con algo de su cartera... en España hemos visto algunos episodios parecidos, con Natraceutical, Urbas, Tafisa, etc. Pero en este caso, la historia es de un chicharro americano que supera todo lo que yo conocía: Earth Biofuels

Earth Biofuels is, in reality, a tiny company with a bafflingly complex structure, owning partial interests in fuel-production ventures as well as plain old gas stations. Its trailing-12-month revenues come to only $6 million, yet the firm carries a market capitalization and enterprise value of more than $400 million.

Earth, which loses money hand over fist, trades at an enterprise value-to-revenue (EV/R) ratio around 68. The biggest ethanol producer in the country, Archer Daniels Midland, has an EV/R of 0.7. Notoriously profitable ExxonMobil (NYSE: XOM) trades at an EV/R of 1.2. Wonderfully profitable refiner Valero (NYSE: VLO) carries an EV/R of 0.4. Even other over-inflated alt-energy plays don't trade at Earth's nosebleed valuation. Pacific Ethanol (Nasdaq: PEIX) trades at near 4 times revenues.

By this measure alone, it's clear that Earth Biofuels is horribly overpriced. But it gets worse.

Earth Biofuels' latest well-publicized plan is to build out or buy up its own network of service stations in order to move more of its unprofitable product. Too bad that's a pipe dream, given that, according to the company's own filings, it doesn't have the money to do this. Not even close. As of the June quarter, the firm showed only $390,000. If you're thinking "Hey, you might be able to open one gas station with that," don't bet on it. Earth's free cash flow outflow shows the company burning greenbacks at a rate of $10 million per year over the past 12 months. And that rate is getting worse, not better, as the top line has grown. The numbers for the first half of 2006 show that while it took in $4.8 million in revenues, it posted a net loss of $19.4 million, and burned $23 million between outflows for operations and investing activities.

Here's one of the strangest things about this billboard-listed penny stock. The market capitalization now stands at about $460 million. Yet Earth is majority-owned by another company, Apollo Resources (OTCBB: AOOR.OB). Apollo Resources, that carries a market cap of only $50 million, owned 64% of Earth, but when I consult my calculator, it tells me 64% of $400 million is $256 million.

If Apollo owns 64% of a company the market values at $400 million, why is Apollo itself worth so much less? If there were smart money out there looking to buy shares of Earth, it should be all over Apollo.

Let me make this clear: I don't think you should touch Earth's parent company, Apollo, either. The other thing Apollo excels at is losing money. In the trailing 12 months, its revenues totaled $23 million and it tallied a net loss of $56 million. It sports a rancid balance sheet with $900,000 cash and $14.4 million in debt. Oh, and the share count has ballooned by 91% between the end of 2005 and June 2006.

Al parecer, tanto Apollo como Earth Biofuels son de un tal Dennis McLaughlin, que debe ser el Pujals americano, elevado a la enésima potencia...