Aventine Stock Falls in Trading Debut

June 29, 2006

by Lynn Cowan, Dow Jones Newswires

Aventine, Second Ethanol IPO of Year, Proves a Letdown

WASHINGTON (AP) — Shares of Aventine Renewable Energy Holdings Inc. declined Thursday in its trading debut and the second ethanol initial public offering this year. Stock of the Pekin, Ill.-based company fell 10.8 percent from its IPO price to close Thursday at $38.37 a share on the New York Stock Exchange.

Aventine’s shares had opened at $41.75 a share, down 3 percent from its IPO price of $43 a share. A total of 9.06 million shares were sold at the high end of Aventine’s price range, which lead underwriter Bank of America raised by several dollars Wednesday.

“This is a major, major misstep in pricing by Bank of America,” said Ben Holmes, publisher of Morningnotes.com, a research firm that tracks IPOs. “They very aggressively raised the price and the number of shares sold. They clearly sucked the premium out of this deal.”

Similarly, an offering by South Korean Web site operator Gmarket Inc. priced well on Wednesday night, only to close down 1 percent on its first day of trading Thursday. Gmarket, which sells everything from electronics to jewelry, had a strong start, unlike Aventine, which showed weakness from its very first trade. But after an initial gain of 17 percent over its IPO price of $15.25, Gmarket’s stock declined, closing at $15.10. The company sold 9.1 million American depositary shares, at the high end of its expected price range, which was set by underwriters Goldman Sachs and Cowen & Co.

Aventine is the fourth-largest ethanol producer in the United States and follows the debut of rival VeraSun Energy Corp. earlier this month.

VeraSun’s stock rose 30 percent on its first day of trading, but gave back some of those gains in subsequent days.

The shares closed at $26.12 Thursday, up 13.6 percent from their IPO price of $23.

Aventine, which is still 31 percent owned by Morgan Stanley Capital Partners in the wake of the IPO, markets and produces ethanol, a corn-derived fuel. It sold 13.5 percent of the U.S.’s total ethanol stocks in 2005 through marketing alliances with other producers; one of those producers was VeraSun, which will be ending its agreement with Aventine in March 2007. Aventine said in its prospectus that VeraSun’s ethanol will be replaced by marketing agreements with three other producers.

Although it is a large marketer of ethanol, the bulk of Aventine’s operating income is derived from its own ethanol production, which had a capacity of 150 million gallons in 2005. The company, like most ethanol makers, is working to expand its production capacity over the next several years; in 2007, it expects to add another 56.5 million gallons of capacity.

Alternative fuel companies like VeraSun and Aventine have gained attention this year as gasoline prices have increased and ethanol has been substituted for a methanol-based fuel additive known as MTBE. However, there are concerns that the sector has become overhyped and that the current high spread between ethanol and corn prices can’t continue at its current level.

Aventine’s first-quarter sales rose 59 percent to $313.5 million, and its net income rose 84 percent to $12.2 million, compared with the same period last year. In 2005, sales rose 9 percent to $935.5 million, net income rose 10 percent to $32.2 million, compared with 2004. In both periods, Aventine credited increased prices and demand for ethanol for boosting sales.

Source: Yahoo

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2 Responses to “Aventine Stock Falls in Trading Debut”

  1. broker said

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