Shares of this recycler have been driven down by falling oil, but institutions have increased their shares at discounted prices in the past few months.
Vertex Energy (VTNR)
from BI Research
Vertex Energy (VTNR), a recycler of used motor oil into re-refined products, has reset its covenants with Goldman, one of which required it to raise at least $15.1 million to be used to repay part of its borrowings with Goldman. The company actually raised $25 million (with a convertible, at $3.10, preferred offering yielding 6%) to also give itself $9 million of additional working capital.
The covenant reset was required due to the impact of the drop in oil prices on the company’s cash flow (not an uncommon problem in the energy sector lately), exacerbated by coinciding with two acquisitions it was making for cash.
Today in addition to the covenants being reset, the acquisitions have been completed; Vertex has paid down $15 million of its borrowings with Goldman; it has gone through a reset of it operations at each facility; it has $9 million of working capital. It is now charging to take away used motor oil, helping to restore profitable margins.
The company was targeting a return to profitability in Q2; hopefully this came to pass. However, in the past few days, oil prices have fallen out of bed again into the low $50’s (after holding pretty steady in the $59+/- range for months). This was due to fears that about a million barrels a day of Iranian oil could come back into the market if a nuclear deal is struck, Euro/Greece news causing a strengthening of the US$, and China’s stock market falling 30% in about as many days (indicating possibly slower growth, and ergo, demand for oil there).
As this was happening, the company was removed from the Russell 2000 effective June 30, due simply to its reduced market cap. Now the market in general is getting hammered daily, which should blow over. The price of oil remains a wild card in the short term. However, I think all of this has put the shares (which were trading at $10 last year) in an excellent buying range for the longer term, and I found myself adding to my position lately.
Tom Bishop, BI Research, www.biresearch.com, July 7, 2015