Vertex Energy (VTNR) inked a deal to acquire Mobile Chemical LP Refinery from Equilon Enterprises for $75 million. Shares of the leading specialty refinery company jumped 151% in the extended trading session on Wednesday.
The deal, which awaits certain regulatory approvals, is expected to close in Q42021. (See Vertex Energy stock analysis on TipRanks)
A project designed to modify the Mobile refinery’s hydrocracking unit to produce renewable diesel fuel is slated for completion by the end of FY2022. Upon completion, the Mobile refinery is expected to produce 10,000 barrels per day (bpd) of renewable diesel by the end of 2022. Based on these assumptions, Vertex plans to increase renewable diesel production to 14,000 bpd by the first half of FY2023.
Thereafter, the Mobile refinery is forecast to report over $3 billion in sales and $400 million in gross profit every year from FY2023 onwards.
Through the acquisition, Vertex will become the single owner of the Mobile refinery making the company a “pure-play” leading independent producer of renewable and conventional products in the south-eastern United States.
The acquisition will also aid Vertex’s clean refining energy transition toward low-carbon energy alternatives. The deal will enhance Vertex’s liquidity profile and reduce its weighted average cost of capital (WACC) over the medium term.
The deal will be financed via a $125 million debt facility, cash generated from potential asset divestitures, and through the sale of common equity if the need arises.
Vertex will also take over approximately 3.2 million barrels of product storage, inventory, logistics, distribution assets, more than 860 acres of land, and 200 employees.
Vertex CEO Benjamin P. Cowart commented, “The acquisition of the Mobile refinery will be the largest, most significant transaction ever completed by Vertex, one that positions us to become a leading regional supplier of both renewable and conventional products.”
He added, “Our vision for this site is that of diversification. We will seek to lead the southeast region in marketing next generation fuels and products that are not currently produced by the refinery today. Our entry into these new markets is expected to generate significant, long-term value for our shareholders, while adding new jobs and economic stimulus to the regional market.”
On May 14, following the upbeat Q1 results, Stifel Nicolaus analyst Michael Hoffman upgraded Vertex Energy to Buy from Hold and raised the price target from $1.50 to $2 (12.4% upside potential).
Hoffman said he was impressed by robust market demand and effective cost controls. The analyst expects baseline EBITDA of $15- $20 million with positive cash flows going forward.
Overall, the stock has a Moderate Buy consensus rating based on 2 unanimous Buys. The average analyst price target of $3 implies 68.5% upside potential from current levels.
TipRanks data shows that financial blogger opinions are 100% Bullish on VTNR, compared to a sector average of 70%.
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