California-based Amyris is an innovator in biochemical manufacturing. The firm has discovered a way to bio-manufacture a molecule called farnesene by modifying the genetic make-up of yeast. The technology is patent-protected. It was originally intended for the healthcare industry and is already licensed out for free to Sanofi-aventis to help it make artemisinin, an antimalarial drug.
But by genetically modifying the yeast that makes the drug, the end product changes from artemisinin to farnesene, which can then itself be modified to make a form of biofuel and products as diverse as detergents, cosmetics, engine lubricants and transport fuels.
The end products of this process are cheaper than oil-based equivalents, and emit less greenhouse gases and smog-causing pollutants than standard biofuels. Customers such as Procter & Gamble, Shell and Nikko Chemicals are queuing up to get their hands on the stuff.
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Revenues tipped the $105m mark for the nine months to September 2011. The problem is satisfying the immense demand. A fortnight ago, the chief executive, John Melo, said that, despite manufacturing more than 200,000 gallons in 2011, the company needed more time to improve product quality at its main factory in Paraiso, Brazil.
As such, it won't now meet its output target in 2012. Amyris is also planning to raise another $30m-$60m of equity "in the coming weeks" on top of its $80m cash pile.
Amyris (Nasdaq: AMRS)
So how much is the group worth? Assuming the factory teething problems are successfully ironed out, Amyris could hit turnover and EBITA margins of $1bn and 10% respectively in five years' time. This would still only represent 1.5% of a $67bn addressable market. The firm could easily be rated north of $2bn by 2016. Discounting back at 15% and deducting another $200m for cash burn delivers a fair value of more than $15 a share, or twice current levels.
The risks are high, as with any other new technology. However, the value of Amyris' science does not seem to be in question, provided output can be ramped up to meet demand. Since French oil giant Total owns a 15.8% stake, its future funding needs should be met.
Fourth-quarter 2011 figures are due out Monday 27 February.
Rating: SPECULATIVE BUY at $5.80 (market cap $267m)
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