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Is Renewable Energy Group (REGI) A Great Long-Term Investment?

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  • REGI

Hazelton Capital Partners, an investment management firm, published its third-quarter 2021 investor letter. The portfolio declined by 7.8% at the end of the third quarter and has returned 7.0% year-to-date. By comparison, the S&P 500 returned 0.6% during the same quarter and 15.9% year-to-date. . You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.

Hazelton Capital Partners, in its Q3 2021 investor letter, mentioned Renewable Energy Group, Inc. (NASDAQ: REGI) and discussed its stance on the firm. Renewable Energy Group, Inc. is an Ames, Iowa-based biodiesel production company with a $2.4 billion market capitalization. REGI delivered a -32.41% return since the beginning of the year, while its 12-month returns are down by -17.58%. The stock closed at $47.87 per share on November 26, 2021.

Here is what Hazelton Capital Partners has to say about Renewable Energy Group, Inc. in its Q3 2021 investor letter:

"Since the beginning of the year, Renewable Energy Group’s share price has declined over 35% and nearly 60% since February when Hazelton Capital Partners cut its position in half. During the 3rd quarter, Hazelton Capital Partners repurchased another tranche, returning REGI to the Fund’s largest portfolio holding with a share count greater than where the position started the year. Renewable Energy Group continues to execute well in a market where supply and demand pressures remain both dynamic and uncertain. Beneath the veneer of a company that has a track record of meeting/beating its revenue and profit guidance, lies a management team whose main focus is on its supply chain and logistic operations. REGI leverages its competitive edge at both procuring cheap feedstocks and delivering its refined biodiesel & renewable diesel to the highest value markets while growing downstream opportunities. The company recently announced partnerships with both GoodFuels, which supplies biofuels to the marine industry and Canadian National Railway. Both companies are looking to expand biodiesel into their fuel mix to reduce their greenhouse gas emissions.

In October of 2021, Renewable Energy Group broke ground on its 250 million gallon/year (mmgy) renewable diesel refinery expansion at its Geismar, Louisiana refinery. The $950 million project is expected to come online by 2023, achieving a full run rate by 2024. With debt of $550 million and a net cash position of roughly $500 million, REGI’s balance sheet is prepared for the upcoming expansion. About 80% of the long lead items have been procured, and their prices locked in. The construction costs will be spread out over the upcoming years, with 15% of the total construction costs hitting in 2021, 45% in 2022, and the remainder in 2023. The nameplate capacity of the new refinery is 250mmgy but given that all of REGI’s refineries have an effective capacity that exceeds their nameplate, one can expect that Geismar will be producing over 400mmgy (Geismar ist refinery effective capacity should benefit from site improvements as well). That will greatly change Renewable Energy Group’s renewable diesel mix from 17% to 46% of total production and have a meaningful impact on the company’s future margins and cash flows."

Based on our calculations, Renewable Energy Group, Inc. (NASDAQ: REGI) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. REGI was in 15 hedge fund portfolios at the end of the third quarter of 2021, compared to 17 funds in the previous quarter. Renewable Energy Group, Inc. (NASDAQ: REGI) delivered a -2.80% return in the past 3 months.

Disclosure: None. This article is originally published at Insider Monkey.