It's time for another dive into my dusty old mailbag of slick promotional brochures from investment newsletter publishers. A few months ago Shawn Ambrosino at Trinity Investment Research sent me a mailer touting Clenergen (CRGE), processor of plant-based biofuel. The pitch is that this company's Indian-sourced feedstocks make it a winner. Let's examine the track record.
CRGE debuted on Sept. 30, 2011 at $0.84/share. Today it trades barely above four cents per share. Investors who bought this stock at any time in 2010 or the first half of 2011 are now so far underwater they may never see the light of day.
Figuring out why this stock has suffered isn't difficult. Accounts payable have been roughly twice as large as current assets for the past four quarters. Clenergen has apparently never seen a bill it didn't like. With negative free cash flow and only $160K cash on hand as of April 2011, it won't be long before the company is completely unable to pay its bills.
Clenergen's business model up to the present quarter has been flawed. Their efforts to simultaneously build stand-alone biomass power plants in several emerging markets have no synergy. Try running multiple, non-integrated supply chains under multiple regulatory regimes in countries where you have little on-gound presence and see if you'll make any money. No wonder their costs are out of control. A look at their senior management team reveals limited bench strength in the energy sector, with a CEO who's had some experience in biofuels and other people who never seem to have touched the stuff before coming to Clenergen. Clenergen's decision this year to change its business model from owning and operating power plants to licensing its technology for use by local power companies is probably the best move it could make under the circumstances. This is the only business model they ever should have pursued given management's lack of experience in energy project execution.
Full disclosure: No position in CRGE, ever.
CRGE debuted on Sept. 30, 2011 at $0.84/share. Today it trades barely above four cents per share. Investors who bought this stock at any time in 2010 or the first half of 2011 are now so far underwater they may never see the light of day.
Figuring out why this stock has suffered isn't difficult. Accounts payable have been roughly twice as large as current assets for the past four quarters. Clenergen has apparently never seen a bill it didn't like. With negative free cash flow and only $160K cash on hand as of April 2011, it won't be long before the company is completely unable to pay its bills.
Clenergen's business model up to the present quarter has been flawed. Their efforts to simultaneously build stand-alone biomass power plants in several emerging markets have no synergy. Try running multiple, non-integrated supply chains under multiple regulatory regimes in countries where you have little on-gound presence and see if you'll make any money. No wonder their costs are out of control. A look at their senior management team reveals limited bench strength in the energy sector, with a CEO who's had some experience in biofuels and other people who never seem to have touched the stuff before coming to Clenergen. Clenergen's decision this year to change its business model from owning and operating power plants to licensing its technology for use by local power companies is probably the best move it could make under the circumstances. This is the only business model they ever should have pursued given management's lack of experience in energy project execution.
Full disclosure: No position in CRGE, ever.
