IPO: Aventine Renewable Energy (AVR) Message Board

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Gold/Mining/Energy : IPO: Aventine Renewable Energy (AVR)

AVR 5.590

+3.3%

Dec 26 9:30 AM EST

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From: Dennis Roth	2/25/2008 9:15:51 AM
	of 2

Aventine Renewable Energy Holdings, Inc. (AVR) Sell: Voluntary cash burn defies logic; downgrading to Sell - Goldman Sachs - February 25, 2008 Source of opportunity Despite significant previous underperformance, we are adding Aventine Renewable Energy to the Americas Sell List. We previously rated Aventine Neutral in the context of a Cautious ethanol coverage view. We see ~40% downside to our lowered $4, 12-month target price. We find illogical the company’s strategy of continuing to spend on new plant construction despite limited cash inflows and the new development that its exposure to Auction Rate Securities reduces previously assumed availability of cash equivalents. Based on its stated goals and our somber margin view, we believe an equity infusion will likely be needed later this year. Catalyst We believe continued weak ethanol margins and resulting cash burn will reduce confidence in Aventine’s ability to fund its expansion plans without an equity infusion of some sort. Given the depressed state of ethanol markets, we believe the company is unlikely to secure favorable terms on new capital. The weak outlook for ethanol markets suggests companies should trade well below RCV, as we have seen in other energy sectors during periods of weak profitability. Valuation We have lowered our 12-month target price to $4 from $12 to reflect 50% of replacement cost value (RCV) for its plants versus 100% before. Key risks Key risk is ethanol margin volatility. Impact on related securities We have a Cautious ethanol coverage view and Sell ratings on Pacific Ethanol and VeraSun Energy. We also reiterate our Attractive view of US refiners, given our view that ethanol is not an economically viable competitive fuel to traditional gasoline.

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