REGI - Valens Credit Report - 2021 07 02
Credit markets are grossly overstating REGI's credit risk with a YTW of 4.894%, relative to an Intrinsic YTW of 2.914% and an Intrinsic CDS of 167bps. Meanwhile, Moody's is also grossly overstating the firm's fundamental credit risk, with its highly speculative B1 credit rating nine notches lower than Valens' IG3+ (A1) credit ratingIncentives Dictate Behavior™ analysis highlights mixed signals for creditors. Members of management are material holders of REGI equity relative to their annual compensation, indicating they may be well-aligned with shareholders for long-term value creation. Furthermore, management has low change-in-control compensation relative to their average annual compensation, indicating they may not be incentivized to accept a takeover or pursue a sale of the company, reducing event risk
Earnings Call Forensics™ of the firm's Q1 2021 earnings call (5/3) highlights that management is confident they captured the cost benefits of feedstock in Q1 production better than the market and that they expect a risk management gain of $14 million. Moreover, they are confident RINs are working as designed to incentive production to meet renewable volume obligations and that CoverCress has large growth potential
Renewable Energy Group is a biofuels producer with a nationwide distribution and logistics system. The company participates in each aspect of biomass-based diesel production, from acquiring feedstock, managing construction and operating biomass-based diesel production facilities, to marketing, selling and distributing biomass-based diesel and its co-products. To do this, the company utilizes this nationwide production, distribution and logistics system to focus on converting natural fats, oils and greases into biofuels. The company owns and operates a network of biorefineries, which are located in the United States and Germany.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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