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Featured IPO: Gushan Environmental Energy (NYSE: GU)
The Hot IPO Trader
Tuesday, December 18, 2007
By Louis Basenese
Email – #197
** Featured IPO: Gushan Environmental Energy (NYSE: GU)
- Largest biodiesel producer in China based on 2006 production capacity.
- Expected to price between $11.50 and $13.50. Trading begins Wednesday.
- We’ll look to buy around $16 (or better).
Gushan Environmental Energy (NYSE: GU) is a pure demand play here. As we all know, China’s consuming more and more fuel as it races toward modernity. And after visiting China earlier this year, I can attest the increased consumption carries a cost – widespread pollution.
As a result, demand for biodiesel – a renewable, clean-burning and biodegradable fuel produced from a variety of feedstocks, such as vegetable oil, animal fat and recycled cooking oil – keeps climbing. A government mandate to double the proportion of renewable energy consumption to 15% of total energy consumption certainly helps, too.
Gushan primarily uses vegetable oil and used cooking oil to produce its biodiesel. It benefits from one process patent, with six more pending…and enjoys sizeable margins in excess of 40%.
As expected, the company’s growing by leaps and bounds. Capacity increased from 10,000 tons in 2001 to 190,000 tons today. And still, the company plans to double capacity by the end of 2008.
Revenues and earnings growth mirror the increase in production, up an average of 118% and 111%, respectively, since 2004. Other positives include no debt, strong insider ownership post-IPO and all of the IPO proceeds being used to fund growth.
As with many China IPOs, the initial valuation will be the only obstacle here. Investors’ recent apathy might present an attractive entry. So let’s monitor the early trading action before entering a position. Expect a final recommendation shortly after trading begins tomorrow.
** IPOs We’re Passing On… And Why
Milestone AV Technologies (MLS): Designs branded audio-visual mounting equipment. Flat panel sales continue to soar, but any slowdown in consumer spending will certainly impact sales. Plus, MLS will be heavily leveraged even after spending all of its IPO proceeds to reduce debt and insiders are cashing out a sizeable percentage of the company.
NetSuite (N): Provides on-demand business management application suites for SMBs. The company boasts a strong pedigree – Oracle CEO Larry Ellison is the founder. But it remains unprofitable and is coming to market as a Dutch auction. Introduced in the U.S. IPO market in 1999, Dutch auctions don’t typically produce impressive gains. The median opening-day gain for all Dutch auctions is 0.91%. Plus, a previous accounting restatement raises concerns too. Long story short – the stock’s too risky now, but it might be worth a look once it turns a profit. So I’ll keep it on our radar.
Orion Energy Systems (OESX): Designs, manufactures and implements energy management systems. Reliant on one technology and operates in highly competitive industry against more established, better capitalized companies. Below our minimum insider ownership level of 30%.
**IPO Pipeline Report
Current Stats : 160 companies with IPO plans filed with SEC.
Next Week : None. Expect the IPO activity to resume by mid-January.
Deals of Interest Further Out : BlueArc and Visa.
**Portfolio Update
E-House (China) Holdings Ltd. (NYSE: EJ): Everyone should have entered around $21.16 yesterday. Stay tuned for further instructions on entering the second half of your position.
(Remember, if you have any questions, comments or successes you would like to share, feel free to drop us a line at editor@oxfordclub.com . We’ll do our best to address each one.)
Good investing,
Lou Basenese
Stock
Rec
Date
Rec
Price
Current Price
Comments
E-House (China) Holdings (NYSE: EJ)
12/17/2007
$21.16
$20.92
Buy.
Bi Louis Basenese is the Associate Investment Director for The Oxford Club . He began his career structuring asset protection programs for private business owners and later joined one of Wall Street’s leading investment firms as a top analyst and trading expert. Louis specializes in non-traditional investments such as hedge funds, managed futures, takeovers, IPOs and various other alternative investments. He has an MBA from the Crummer School of Business at Rollins College and draws upon both his academic and professional experiences to edit three elite trading services: The Takeover Trader , The Hot IPO Trader and The Long and Short Trader . Louis also is a regular contributor to the Oxford Club Communiqué and the Oxford Insight e-letter and is a top-rated speaker at financial conferences around the country.
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