China Biodiesel (CBI)
A spivvy, struggling, speculative Chinese value stock?
China Biodiesel, listed on London’s AIM market, makes biofuels from a range of feedstocks in Fujian Province, Southern China. Check out the cute little beaker on its website labelled “Sample of Product”.
I had to take a couple of deep breaths before writing this post because China Biodiesel is a bad idea in so many ways. To name just a few of them:
- There is a bubble in the Chinese stockmarket. There really, really is.
- It’s Chinese. I have nothing against the country, its people or its wonderfully successful economy, but I distrust the mechanisms through which dozens of mainland start-ups have materialised on Western markets over the last few years.
- It makes biodiesel, a troublesome solution to global warming, against which a backlash is already beginning.
- Lots of biofuels companies have come to grief already, struggling with the technology or the underdeveloped market. Biofuels Corporation, anybody?
- China Biofuels has hit both of these problems and has already issued two profit warnings this year.
- It’s incorporated in the British Virgin Islands and is not subject to the UK Takeover Code.
Looking only at valuation, however, China Biodiesel is cheap. The offer price of 29p is 1.2x tangible book value, 4.9x 2006 earnings, and CBI is growing fast.
2007 will be much worse - first-half EPS was only 1.1p and I wouldn’t be surprised if there is a loss for the full year - but this is not an expensive share.
I haven’t got into the details of the company or its market and will post more this week, but one thought tantalises me: in Shanghai or Hong Kong, China Biofuels could trade at a P/E of 40x or 50x. Relist the shares and the return could be spectacular.
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This website is about my investments and opinions on shares. It does not constitute advice and you should not rely on any material in this website to make, or refrain from making, any decision or take, or refrain from taking, any action. Where I have positions in a share I mention I will disclose them. Rogue Analyst is not authorised under the Financial Services and Markets Act 2000.
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[…] Monday I noted China Biodiesel’s low valuation: it trades at 1.2x its tangible book value and 4.9x its 2006 earnings. CBI is a rapidly expanding […]