Syntroleum Corporation: No Clear Path For Return To Growth

Syntroleum Corporation: No Clear Path For Return To Growth

Syntroleum Corp (NASDAQ:SYNM) is engaged in the commercialization of its technologies for the production of sytnthetic liquid hydrocarbons. The company was founded in 1984, has a current market cap of $33 million and an average daily volume of 51,700.

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Syntroleum is no unproven tech company

With nearly 30 years of history behind it, Syntroleum Corp (NASDAQ:SYNM) is no unproven tech company. Syntroleum has proven itself and its business model for three decades, establishing itself in the market to produce synthetic fuels from a wide range of feedstocks from natural gas, fats, oils and greases.

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Prior to the beginning of this fiscal year, Syntroleum Corp (NASDAQ:SYNM) had three main divisions: technology, technical services and revenues related to a subsidiary, dynamic fuels. For the first nine months of 2012, revenue from these three sectors totaled $16.4 million. However, for the first nine months of this year, revenues from the company’s technology division and revenues related to Dynamic fuels have not materialized. This has slashed the company’s revenue for the first nine months of this year to a figure around 90% lower than the same period during 2012.

This has been catastrophic for the company as costs have remained high. As a result, Syntroleum reported a $2.6 million loss from continued operations during the first nine months of this year. In comparison, for the same period during 2012, Syntroleum Corp (NASDAQ:SYNM) reported a profit of nearly $4 million. Still, the company did report a $6.4 million profit from discontinued operations during the first nine months of this year.

Upon further investigation, it would appear that these revenues from discontinued operations include $5,798,000 in proceeds from the sale of the company’s nominal two b/d pilot plant in Tulsa, Oklahoma and $603,000 from previously accrued asset retirement obligations from which Syntroleum was released in connection with the sale.

Syntroleum sold off its only revenue generating asset

So, it would appear that Syntroleum Corp (NASDAQ:SYNM) has sold its only significant revenue generating asset. The company is likely to remain loss making in the near term, unless it can slash costs and ramp up revenue, which there is scope to do. Unfortunately, this does not explain why the company sold off its only revenue generating asset and what the firm expects to do to generate revenue in the future.

That said, the company has over $16 million on its balance sheet, which is worth approximately $1.6 per share, half the current market capitalization. Moreover, the company’s investment in Dynamic Fuels LLC is valued on Syntroleum’s balance sheet as being worth $40.3 million, a significant figure. Nonetheless, based on the fact the Syntroleum Corp (NASDAQ:SYNM) has booked almost no income from Dynamic fuels so far this year, perhaps it’s an investment that would be better made elsewhere.

Syntroleum Corp (NASDAQ:SYNM) has almost no significant liabilities on its balance sheet and shareholder equity stands at $43.6 million, or $4.39 per share, indicating that at current prices, Syntroleum is trading at a price-to-book ratio of 0.76. However, investors should be wary as it is unclear how Syntroleum will return to growth or if the company will continue to stagnate. The company’s lack of revenue for the first nine months of this year is concerning.

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Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. Prior to his investing and writing career, Rupert began his career as a proprietary currency trader. Rupert holds qualifications from the Chartered Institute For Securities & Investment and the CFA Society of the UK. Rupert covers everything value investing for ValueWalk and co-runs HiddenValueStocks with Jacob Wolinsky Email -
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