Investor interest in Rentech, Inc. (AMEX: RTK) has been surging over the past week as trading volume in the provider of alternative and clean energy solutions and manufacturer and seller of nitrogen fertilizer products has spiked considerably and pushed shares above the 1.00 level, actually hitting a six-month high of 1.42 on Tuesday, and many analysts anticipate favorable market conditions will continue to boost the company’s financial position. In part those market conditions led research analysts at Zacks Investment Research to upgrade RTK from a “neutral” rating to an “outperform” rating last Thursday, a move that triggered a positive reaction in RTK’s share price.
Right now RTK is trading around the 1.21 – 1.27 range and while that is a dip from the 1.42 shares hit on Tuesday they remain well above the 50-day moving average of 0.93 as well as their 200-day moving average of 1.07.
There have been a number of factors that have contributed to Rentech’s rise; among them their impressive third quarter 2011 figures that showed revenue jump to $74.4 million from revenue of $50.5 million during the same quarter 2010. That significant revenue growth was generated in large part by the rising prices for all nitrogen fertilizer products as well as higher sales volume for RTK’s urea ammonium nitrate (UAN) products and what makes this notable is the fact that many analysts anticipate the global demand for nitrogen fertilizer products to remain strong going into 2012 due to an anticipated supply crunch in the agriculture sector.
This is where things get interesting for RTK as they have already formed a limited partnership called Rentech Nitrogen Partners which will hold their fertilizer assets upon successful completion of their initial public offering of up to $250 million in common units. That IPO was filed in early August and proposed to introduce Rentech Nitrogen Partners as a publicly traded limited partnership which, according to RTK President and CEO Hunt Ramsbottom, “MLP will be managed and controlled by a general partner, which would be owned exclusively by Rentech and Rentech will select the general partners’ board members.”
Currently there are only two other pure-play public nitrogen fertilizer companies in the Americas and Western Europe, CBR Partners and Terra Nitrogen, and they happen to be structured as publicly traded limited partnerships, commonly referred to as master limited partnership (MLP) as well. Given the recent success of nitrogen fertilizer products and the growth outlook for this industry many investors are in favor of the “pure-play” company rather than the company that may be taking losses from other segments in their business.
Essentially what RTK intends to do is have Rentech Nitrogen Partners listed on the NYSE under the symbol RNF and this MLP would then, in the words of Ramsbottom, “secure a source of ongoing capital to fund our alternative energy business.” Ramsbottom outlined the benefits of the public MLP structure to investors during the company’s conference call following third quarter results, saying “the public MLP structure of our fertilizer assets would provide value to Rentech shareholders if the IPO is completed, by giving us access to capital for our businesses on attractive terms, without issuing Rentech’s stock. The MLP will distribute cash generated in each quarter, as described in the S-1, following the IPO cash distributions received by Rentech from the MLP would be in proportion to its ownership. As an expected majority owner, we’d receive the majority of the distributions.”
So at the end of the day investors interested in RTK better believe in their alternative energy business because that is where their money is going. Of course that’s not a bad thing and really where RTK could shine as they continue to develop energy projects to produce certified synthetic fuels and electric power from carbon-containing materials, such as biomass, waste and fossil resource. Their technologies can produce synthesis gas (syngas) from biomass and waste materials, and convert syngas from their own or other gasification technologies into complex hydrocarbons (known as the Rentech Process) that are then upgraded into fuels using refining technology that they licenses. In addition to developing projects using these technologies, RTK is pursuing the licensing of its technologies to developers of projects that are expected to produce fuels and/or power.
RTK currently owns two unique gasification technologies, the Rentech-SilvaGas and Rentech-ClearFuels biomass gasification processes capable of converting multiple biomass feedstocks into synthesis gas (syngas) for production of renewable fuels and power. Through their Rentech Process the company has the capability of converting syngas produced from fossil resources using other technologies into ultra-clean jet and diesel fuels, specialty waxes and chemicals. The demand for cleaner synthetic jet fuels has been on the rise as of late and while it is a competitive market RTK could find themselves a beneficiary of that demand.
Right now it appears as if RTK is lining their business up properly and really making themselves attractive to a wider audience of investors. As more analysts upgrade their rating on RTK and revenue growth turns to increased profits for shareholders the share price should reflect the positive news.