Raper Capital's Jeremy Raper outlines strategic alternatives for Alto Ingredients $ALTO (podcast #177)
Jeremy Raper, Founder of Raper Capital, is back on Yet Another Value Podcast to share his latest idea: Alto Ingredients, Inc. (NASDAQ: ALTO), a leading producer and distributor of specialty alcohols and essential ingredients.
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Transcript begins below
Andrew Walker: All right. Hello and welcome to the Yet Another Value podcast. I'm your host, Andrew Walker. If you like this podcast would mean a lot. If you could follow rate, subscribe, review it wherever you're watching or listening to it. With me today, I'm happy to have on one of the people, actually, I'm not even going to say one of the people's favorite guests. Jeremy Raper. Jeremy, how's it going?
Jeremy: It's going great, Andrew. Always a pleasure. How are you?
Andrew: Jeremy, I was just surprised. I said Jeremy Raper is coming on. We were kind of keeping the name of the company under wraps until you released your open letter. Do you have any questions for Jeremy and the questions, I mean, we are approaching Warren Buffet at Omaha levels. It's just, Jeremy, what do I do with my life? Jeremy, how did your hair become so long and flowing and beautiful? It was wild, but let me start with the disclaimer, nothing on this podcast is financial advice. That's always true, but probably particularly true today.
Jeremy and I are going to talk about a very small cap, a kind of levered company that Jeremy is going activist in, so obviously there's all sorts of increased risks there, and then I think we might kind of flow through a couple of other names, so everybody should just remember there's plenty of risk here, not financial advice. Please do your own work. Anyway, Jeremy, the reason you came on today, we wanted to have you on today is because you took a position in a company and recently published recently.
This morning, published a letter to them, the company is Alto Ingredients, the ticker is Alto, and I just want to toss it over to you. What's going on with Alto? Why'd you take a position? What did you want to get done with the letter?
Jeremy: Sure. Okay, so just at a very... by the way, thanks for having me back again, it's always a pleasure. At a very high level, I'm going to try and dumb down some of the lingo because as we'll go through, there's a lot of kind of terminology with regard to regulatory credits, tax subsidies, what have you. I'm going to try and keep it as high level as possible so that people can understand, but I did write an open letter to the board of Alto, you can find it on my website, rapercapital.com.
Under the engagement section, or probably easiest, is if you follow either Andrew, myself on Twitter, you'll probably find it in some of the comments, so you can read that letter by way of background, but essentially Alto is a ethanol commodity ethanol producer, and they have 2 main campuses. 1 is kind of a high quality, fully invested integrated meal called the Pekin campus, Pekin, which is in Illinois. That has about two hundred and fifty million gallons of total capacity, of which about 60, 65%, let's call it 60. Hundred and forty, hundred and fifty million of that two hundred fifty is what I would grade as specialty grade, so it's not actually commodity ethanol.
It's kind of they've invested to make it produce a higher value content, protein content product than vanilla fuel ethanol, which just gets sold as a blending agent into gasoline, and the rest of that facility is essentially fuel ethanol, and they have 2 further plants out West, one called Magic Valley, one called Colombia, which are smaller subscale dry mills, so not as high quality product that can't produce this specialty grade, so all in capacity is three hundred and fifty million gallons, I should say.
Two fifty million, very high value in Illinois, 2 smaller plants out West. Now, I don't mean to give too much by way of background, but I think it's quite important, so the ethanol industry is a pretty horrendous industry to be frank. The main problem is it's beset by overcapacity because a lot of the ethanol production facilities are owned by pharma cooperatives, and essentially to make ethanol you ferment corn, and so if you're owned by pharma Cooperative, they're much more interested in selling the corn into the ethanol producing facility, into the ethanol fermentation process.
They are about actually making money on ethanol, so, historically had this big problem of over capacity in the industry that was solved by an export valve. That export valve was predominantly China, but then when Trump came in in 2018, I think it was, he slapped a bunch of tariffs on all kinds of products from China, and China responded by slapping huge tariffs on US ethanol, so it almost closed the Chinese market to US ethanol.
A lot of that ethanol actually goes to other places like Canada now, and it created this big imbalance in the market in the US, so it's kind of in a structural overcapacity, but because a lot of these ethanol facilities are owned by pharmas, they didn't drop out of production when prices collapsed. They kind of stayed as lost leaders because they're there to essentially buy corn, so it's kind of a prototypical commodity industry in a state of, I don't want to say semi-permanent, but chronic overcapacity, and as a result, it's kind of beset by your typical commodity, vicious cyclicality, price swings, what have you.
Now initially coming out of COVID, so that's kind of overall background. Initially, coming out of COVID, ethanol, a lot of ethanol data actually did quite well, for a period one driving demand. You may recall the summer of 2020 driving demand was insane because everyone stayed at home, so actually, driving demand, which is essentially the main driver for ethanol demand because of the blending, surprised at the upside and stocks had been run down because a lot of facilities were closed during COVID, so you actually saw a big pickup in pricing.
Combined with that, a lot of these facilities lucked into a huge windfall from alcohol sanitizer, so one of the value added ingredients that a lot of these guys make is actually input into hand sanitizer, so the price of this stuff went up 10X or whatever, so just going back to Alto for a second, they made sixty, seventy million of EBITDA in 2020, 2021, so these were kind of banner years, like 5, 6, 7 average year EBITDA is more like thirty, thirty five million, so when they're making seventy million EBITDA, that was kind of like a really really good year.
It was really kind of driven by these 2 factors as temporary imbalance in the market because of COVID shutdowns, what have you. Then surprising demand and driving related demand combined with this insane profitability of sanitizer that lasted for, twelve, fifteen months and then completely died. Now in 2022 was the complete opposite. By 2022, the markets kind of collapsed for a few reasons. Obviously, a lot of that idle capacity had come back. More importantly, there was a lot of idiosyncratic issues with regards to the feed stock.
Andrew, you're involved in all these things that you followed, what happened last year with very closely with supply chains bottlenecks, but essentially what happened was you had kind of you literally had lightning strikes in some of the rail systems in Illinois, which really affected Alto in particular, they're the largest user of the Union Pacific railroads, so that really hurt them, but you had other things, like you had a massive explosion in natural gas prices.
Natural gas is one of the main input costs for production of ethanol. You not only do you have, obviously Nat Gas went to $9 Henry Hub, you also had a big explosion in local basis costs for Nat Gas, so Illinois based Nat Gas actually blew out even more so than your generic Henry Hub pricing, which is very expensive, so you had a big explosion, import costs, you had a huge increase in rail costs, freight costs. You had beyond just the pure cost, you had bottleneck supply chain issues.
You couldn't actually get corn where you needed to get it at certain times due labor issues, strikes, what have you, and then you also had an explosion in corn basis, meaning the difference between the futures price of corn and the actual delivered physical cost of corn. Now, this is important because to make ethanol, you have to ferment corn. You can't just buy it on a screen. You actually have to get it from a grainery, and so some listeners may be familiar with aluminium. There's what's called a Midwest premium. It's a similar concept.
You trade it on the screen, but when you get delivery of the product, you have to pay a premium for physical product. That premium moves around, just like a market. There's a market on that premium, and it's called basis in ethanol, and that blew out last year as well for some of the reasons we discussed. Supply chain issues, some local idiosyncratic issues. Also, things like the Ukraine War, which really tightened the global wheat market, and obviously that's related to corn as a food input, and so there was a huge demand for corn to go to other places other than the Midwest.
The basis absolutely exploded, so you kind of had too much ethanol in the system combined with high input costs, combined with a few other idiosyncratic issues, plus massive increase in kind of Opex, Nat Gas, what have you, and so profitability just collapsed, and so last year I mean from... I don't have the numbers in front of me, but fourth quarter, they lost money at negative EBITDA level, first quarter this year, substantial negative EBITDA. It's a low single digit EBITDA in the full year, basically.
Andrew: I had the 8K pulled up, so I'll just... they did negative 4 and a half million of EBITDA and Q123, so they were negative, and the DNA for... you've got these big refineries, like the DNA n for these, sorry, ethanol product. The DNA is real here, so if you're slightly negative on adjusted EBITDA on a like cash all in basis, it's quite negative once you account for that maintenance cap ads.
Jeremy: Definitely, definitely. Again, so a very high level by way of background, it's important, so while this was all going on Alto stock for most of 2022, was kind of like a 5 to call it $6 stock, maybe it was above there slightly early in the year, but by the end of the year, it was kind of like a $3 stock, and then they reported the 4Q numbers in early 2023, and the stock just got absolutely obliterated. I mean, it went from, $3, $3.52, the low was like $1. 30 something.
The reason for that, I mean, obviously the fundamentals have deteriorated massively, but more than that, the balance sheet, which had been actually quite clean until a couple of quarters ago, had deteriorated pretty rapidly. So they managed to go from a chronic net debt position to actually a decent net cash position over the last eighteen months, as they sold a lot of non-core assets, and managed to generate some cash through the kind of good years, 2020, 2021, as I mentioned, but mostly through asset sales.
Then at the end of 2022, they'd made the curious decision to draw down a lot of debt, very expensive debt, actually. 11% all in cost of debt firstly, super senior paper claim on all the assets kind of debt with an equity kicker as well, and an original issued discount 1.5%, because kind of the way to get away from this commodity ethanol purgatorial cycle is to kind of move into higher value added products. So I mentioned before that some of their capacity has already kind of been semi upgraded and produce value added products.
Essentially what they're trying to do is get out of the commodity business of making fuel ethanol, and then making higher value added products where they essentially extract more protein from the ethanol molecule and sell it as kind of like animal feed stock, or an ingredient into distillers grains. So making alcohol, beverage alcohol, beverage ingredient, or hand sanitizers, one example, but those kind of other consumer facing product inputs, which obviously trade at a much, much higher premium than your kind of $2 $32.50 a gallon, which is kind of an ethanol trades.
In order to do that, they have all these different investments they're doing, and by the way they're doing, you can pull up their 4... actually, they do have a good slide deck from their 4Q report, where they go through a lot of their investments and it's really a laundry[?] list of different things from new corn silos to...
Andrew: On their earnings calls, they talk about them, and it's like 6 paragraphs long, all the descriptions, and whenever you see it you're like, "Is this a $500 billion company? That's like talking about all the"...it's crazy how small they are, and they've got all these different investments they're talking about.
Jeremy: No, I mean, it's really all over the place. There's at least 7 or 8 different things, and it's not that there are 7 or 8 different things tied into one facility or 1 product. They're really disparate projects, so at 1 facility, they'll be building a new corn storage facility, then they'll be trying to increase their corn oil yield. Corn oil is a byproduct of ethanol. It's an input into renewable diesel. It's actually a high value product, so they'll be trying to do that, which is a good thing. Another one, they'll be trying to increase their primary yeast production, essentially towards the drinking alcohol industry or what have you.
Then they're going to do a cogen plant, to try to become more efficient at the core Pekin Campus. Now then they have the carbon opportunity that will spend a lot of time on, I mean, literally a laundry list of different things. Half of them are to do with the core Pekin Campus, which as I mentioned, is kind of the crown jewel of the company, but a lot of them were still to do with these structurally challenged Western assets, which I have a bit more of a problem with.
Anyway, so they drew down this extremely expensive cost of debt to theoretically fund a bunch of these projects, but not actually the projects that I think have the most value, and I think the market has the most value, and these are the decarbonization related projects, so essentially what you have is your company trying to undergo a pretty fundamental corporate transformation from a commodity ethanol producer to a value added protein and derivatives producer, with a lot of carbon related opportunities that have relatively recently come to the fore after the passage of the Inflation Reduction Act.
The Inflation Reduction Act is a piece of legislation passed in the summer of 2022 by the Biden administration, that are going into some detail in the note, at a high level. I mean, it's very technical, obviously, it's kind of like a two thousand page document, but essentially what that legislation did was completely change the value in use of invested ethanol plants, because you're taking this thing that produces a commodity grade fuel input essentially, but ethanol could be considered separately as a pure carbon dioxide factory.
Because as a byproduct of the biogenic, fermentation process, it's one of the few industrial processes that spits out almost pure carbon dioxide. In other words, so again, backing up a little, if we were to talk about carbon capture, which we'll discuss in a moment, the number one benefit to, or I guess that the easiest way to capture carbon, is if it's a very, very high purity off stream in the off gases of the bio-refinery, because the higher the purity, the easier it is to capture essentially, so conceptually, if you think about it, I guess I didn't really go through what [inaudible] Should probably get through that.
Andrew: I think a simple way I Green Plains GPRE which is a much larger, much more successful competitor with lots more specialties, but they held an investor day which I know you read, and they an IRA teaching, which I know you read and really liked, and one of the things they said, like, "Look, the corn molecule, if you think about it when you turned it into anything ethanol, like it's just releasing pure carbon dioxide." Like a little tiny corn kernel is basically a storage of CO2, is how you can think about it, and when we do anything with it, all that CO2 escapes, so if we can capture all of that CO2 as you're saying, it's pure, you're capturing it, it's pure, it's the perfect thing for carbon capture if you can capture it.
Jeremy: Exactly, and so just to recap, carbon capture and sequestration, CCS, this is a... I don't want to say it's a novel concept. It's been done in various forms for well over a decade by certain industrial players, but under the IRA, it is being massively incentivized through these crazy generous subsidies, so the whole reason these ethanol plants now have massive value to financial bio strategic buys or what have you, is that in this 99% pure carbon dioxide stream.
If that can be captured, stored and sequestered, sequestered meaning in injected into a geologic formation underground, such that it can be contained for a thousand years without permeating into the surrounding rock or sediment, if that can be accomplished, the US government is going to pay you a crazy amount of money, and there's 2 different kind of subsidies that they're offering under the... well, they existed before the IRA, but they got beefed up on the IRA.
One of them is called 45Q, and one of them is called 45Z. I'll save the technical description of the actual terms. People can read my note and look at the math if they really want to know, but I keep it very high level. Just on the Pekin Campus alone, Pekin Campus produces over seven hundred thousand metric tons of almost pure carbon dioxide a year, just on the Pekin in campus alone, forgetting the Western assets, I think the carbon capture opportunity alone is worth over one hundred and forty million EBITDA, fully invest, and you have to invest and build the machinery to capture the carbon.
You have to pay to store the carbon, you have to pay someone to transport the carbon to a site, of course, but hundred and forty million of EBITDA, putting that in context, as I said 2, 3 years ago, a very good year of EBITDA with seventy million.
I mean, this is totally un utterly transformational, and again, this is kind of 2 levels deep of this carbon opportunity, and I won't go into too much detail, but as you decarbonize your operations, it opens up other levels of subsidies and other new products, such as sustainable aviation fuel that get all kinds of different subsidies.
Not just from the federal government, but actually from state governments as well, that could be of extreme value, but I'm not building anything in for that. I'm literally building in the value of 45Z credit, which is kind of like the vanilla number 1 credit that everyone's going for, and then LFCS, so LCFS, Low Carbon Fuel Standard, which is an established carbon market in California, Oregon, I think Canada as well. I need to double check.
Where basically if you've decarbonized through capturing the carbon, then your ethanol becomes clean ethanol and green ethanol, whatever they call it, you sell it into California and you get an extra $80 or $90 per ton just for that.
Andrew: I think there's more we could talk about with the specifics of each individual subsidy and everything, but I guess let's jump. We're twenty minutes in, so let's jump to the heart of that. Like there are all these ethanol in general, like it reminds me of a few companies that followed where you've got these assets and all of a sudden you lock into something that's super useful. Like at the heart of COVID as you said, at the heart of COVID, if you could make hand sanitizer, all of a sudden you had the greatest boom of all time because the demand was literally unlimited in supply, was fixed for a while.
Last year when all the Russian oil gets banned, if you could ship oil, if you were an oil tanker, all of a sudden demand goes through the roof and you get lifetime profits. It's insane, so they've locked into basically the IRA is just perfect for everything. They've locked into this thing, they've got a lot of things that they can produce, but I guess where I wanted to jump to is what are you calling on them to do. Like what are you here? You've bought up a serious stake in the business, you sent a letter to the board, what do you want them to do?
Jeremy: Okay, I want them to sell the company, but more specifically, I want them to divest the western assets, so the suboptimal smaller capacity kind of non-scale assets. I wanted them to divest those and then run a full auction for the Pekin Campus. My thesis is obviously this generic thesis around ethanol assets, well-invested ethanol asset have been highly valuable. That's the general thesis. The specific thesis about Pekin is that this is a strategic asset now because of its location, so the key about carbon capture, anyone can... okay, I don't want to go too high level.
Anyone can theoretically build the infrastructure of the capture of the carbon. The real value in use is transportation and storing. Carbon dioxide has to be transported as a liquid at about ten times the pressure of natural gas. You cannot actually use a natural gas pipeline to transport carbon dioxide. You need a special pipeline, so the actual bottleneck to a lot of carbon economics is the distance you have to pipe it from the source to the storage site.
Pekin has 2 hugely valuable options. 1, they could theoretically do what's called direct inject, meaning they basically just dig where they are under grid, and if the geologic quality, five hundred meters below the earth is of relevant and the quality, then you could hear at least store your carbon there, because Pekin sits on the middle of the Illinois basin where it has these kind of geological structures necessary to store gases deep underground, but even if they can't do it directly at the site, guess what, they're only seventy miles away from one of the world's largest operating carbon capture storage facilities operated by Archer Daniels Midland in a city called Decorator Illinois.
It's near Peoria if anyone is from the Midwest, so instead of being based in the middle of nowhere in North Dakota, where a lot of these, they're in the corn belt, so a lot of these ethanol facilities are in the middle of what, Wyoming or Nebraska or whatever, they're seventy miles away from a perfect picture site. They could easily get some... they don't even have to build a pipeline themselves, pay ADM a fee and store their carbon there, so it's situationally unique.
It's a well-invested asset, meaning it has a wet mill. They've already made a lot of the investments necessary to actually add value to the finished product, it's a perfect, perfect site for carbon capture. I mean, it's of scale as well. It's not like a tiny facility, two hundred and fifty million is a solid level of production capacity, and actually having spoken to some industry experts, there's upside, there's brownfield capacity expansion, so there's upside to an acquirer to increase production capacity in another thirty, forty, fifty million gallons.
Obviously to capture the carbon, on top of that, if or when they develop that, so it's locationally advantaged, it would have a huge value in use to an acquirer, and my thesis is, look, Alto is currently capitalized. It's just not in a position to make the necessary investments. They do not have the balance sheet required that was demonstrated, late last year when they went and got this kind of usurious loan, point 1. Point 2, when the equity is absolutely collapsed and cost of equity exploded, the market is just not there for them.
The capital markets are just closed. They don't have the wherewithal. More importantly, perhaps more importantly, they don't have the track record of successful execution. Like people talk about Green Plains. Green Plains is excellent company, I'm not as near current on it as I should be, probably it may be a very interesting investment in the coming years, they're miles ahead of Alto in terms of where they are, both on the protein side and on the carbon side, and even they are being called upon by activists to do something with the business, because they're a $3 billion company what have you.
With a billion gallons of capacity, and even then, some of their shareholders think that doing it in the public markets is going to be too tough, take too long and potentially be too risky, so Alto, you can pull up the long-term shareholder return chart. It's kind of 10 year shareholder return, like negative 60%. It's kind of been perpetually undercapitalized and poorly managed, has a horrendous record of capital allocation. They do not have the credibility, they don't have the capital, frankly, they don't have the... I'm sorry to say that they just don't have what I would call the executional know-how, to proceed with a corporate transformation like this.
Because of that strong industrial logic to selling the core asset, that combined with the financial upside to the owners of this business, meaning the shareholders, makes it a no-brainer, because here's the rub. Today stock is $2 80, that's about 50 cents a gallon in terms of the valuation of the assets invested capacity. Green Plains got on their 4Q call and said, "Look, people are bidding a $1. 50 a gallon for invested assets, assets of scale, meaning a hundred million gallons or greater of capacity."
People are bidding a $1.50 a gallon and aren't even getting invited to the second round. Replacement value on assets, not wet mills necessarily, but even dry mills probably about $2 a gallon for something like Green Plains is much higher because they've been spending a lot of money to kind of add value to the assets over many years, but for a vanilla kind of ethanol asset, it's probably about $2 a gallon. This thing's trading at 50 cents a gallon.
All right, you just total up the working capital and give 40 cents a gallon for the crappy Western assets, you get $6.50 a share stocks at $2.70, $2.80.
Andrew: I mean, if I can just add there.
Jeremy: Yeah, go.
Andrew: I'll include a link to Jeremy's letter, but even more Jeremy's letter values, you can go look, appendix just values the Pekin Campus at a $1.70 per gallon, cut it down to a $1.50 if you really want, but a $1.70 per gallon, that comes out to four hundred twenty five million in value. The whole company now is valued at an enterprise value of just slightly over three hundred million, so you're talking about the Pekin Campus covers all of the value plus some, and then you would get another forty, fifty million from the other things. Plus, if you want to give them credit for some of the..
Jeremy: Working capital. Working capital is very large.
Andrew:Working capital, but Pekin Campus covers everything.
Jeremy: Yeah, so just to be clear, they have a hundred and twenty million of networking capital. I give them credit for my year two-thirds of that, and the reason I do that is because in prior transactions, they have sold a fair few assets in the past, and other guys like Green Plains have divested assets. When they trade these assets, they do tend to get accredited for the working capital that goes with the business, so I'm not treating it fully as cash, but there is some cash like value there, but yes, basically... yeah, go on.
Andrew: I was just going to... and that would go to the working capital. Like a lot of these things, like some you get just because you get it back and like there's a big working capital investment, and having the inventory and everything, and you can deal with that one way or the other, but another thought is, look, a big strategic player who comes in, if they do it and they're selling hundreds of millions of barrels of things, they generally are going to get better terms and everything, so they're dealing with the same thing.
They can probably optimize and trade around. I guess the point I was trying to drive to in eloquently is, if they sold to a Green Plains or somebody larger, like the plant obviously you need the people working on the ground, but there's actually going to be real operational synergies where you sell up to the person where, "Hey, you only need one account manager."
Guess what? We're going after a lot of subsidies. You do need lobbyists. You do need regulatory people to like check all the boxes. Well, they're already doing ten plants. You can toss this 1 plant on there. As I'm saying, you're going to get better working capital terms. You tend to be able to get a little bit of, "Hey, we were fulfilling this contract from a plant a hundred miles away, Alto's plants a little closer, so we'll do it there, and we get a little bit of synergies there."
Like there just tend to be a lot of those little things when you go from beam, basically a 1 plant company to selling to a strategic.
Jeremy: There should be that kind of ties into something. I probably should have spent more time on the literary, I didn't. There should be tons of potential acquirers for this asset not just... I mean, financial buyers for sure. Like as I said, if this thing's going to be doing one forty million of EBITDA kind of level 1, level 2 EBITDA before you consider these add-on options and you're paying what, 3 times EBITDA for it. Look, all the renewable businesses we focus on, these all trade near double digit multiples or high double digit multiples.
Yes, this needs to be proven out. Yes, this is an EBITDA next year it's probably 2, 2 and a half years out, but nothing sexier than carbon capture. It's a very sexy story, 3 times EBITDA for, as I said, kind of low hanging fruit numbers, this should be very, very attractive. That's the financial bias. Then there's a whole suite of strategic players who would love to invest. I believe in something like this from everyone from agricultural conglomerates who want to develop their carbon businesses.
Decarbonization, it's very, very hot topic, so I mentioned Archer Daniels Midland, obviously they're a huge player, but you could go to any of the large agricultural conglomerates, Cargill, what have you, they're all expanding in decarbonization as Green Plains, this would be a very nice little bolt-on for them, to be honest their plate might be a bit full, so I'm not saying they're the most likely acquirer. You could even go look at upstream or integrated oil names who are looking to decarbonize or kind of build out their renewable businesses as well.
Obviously Chevron bought REGI, which is primarily an ethanol player, and they're moving into renewable diesel, but again, this is very analogous kind of trade, so you could look at oil majors as well. I mean, there's literally, there should be... and the final point I would make is not a big purchase. We're talking even at the numbers, I'm talking about a few hundred million dollars, once you divest, once you divest of the crap, your assets, you get fifty, sixty million back from that, so we're talking close to three fifty, four hundred million.
This is not a big ticket transaction for what I think is a pretty interesting asset, so there should be a lot of interest.
Andrew: Let me ask, I think there's a lot of questions around here. Like is the company going to do it? But I think the main question I have when I look at this, a lot of people who are going to have when they look at it, they're going to say, "Okay, Jeremy, this sounds great. Obviously there's a big trend coming. You can go read"... again, go read the GPRE and IRA teaching day from 6 weeks ago or whatever. It's really informative, but, when I've talked to really smart investors on ideas or ideas like this that say, look, I understand you're making a great pitch, but here's the issue, it's none of this is economic in the sense that especially ethanol.
The whole ethanol and the subsidies and everything, it is just the stupidest thing, one of the stupidest things the government does. Like, "Hey, let's take all of our food stock and let's throw it into our fuel supply for green reasons. Except when we throw it in our fuel supply, we're releasing tons of carbon dioxide and it's increasing our food supply." It makes absolutely no sense, and a lot of renewable diesel BioD, so whatever, a lot of them do that, and a lot of the people I talk to just say, "Hey, I just can't invest in something that doesn't make sense, even if the big things are there."
Because when you rely on government subsidies, like look the ethanol industry is very powerful. The corn industry is very powerful. Ethanol's been here for what, like 20 or 30 years and everybody's saying it's stupid the whole time, and it hasn't gone anywhere. It gets really locked in, but when you rely on stupid subsidies, like sometimes they just get yanked away, like out of nowhere, and people just can't... a lot of people just don't want to underwrite that political risk, so I threw a lot out to you, but that is like the overwhelming question I have when I look at things and things like this, and I think a lot of investors will have.
Jeremy: Look it's a good question. I mean, I can't really push back too hard on it. There's definitely pen stroke risk here. I mean, what I would say is probably this, you know that old saying approach the world as it is not as you wish it to be, so you and I both know these subsidies probably have all kinds of negative concomitants and are not economically rational, and not the best use of our food, agricultural industry, whatever long term, and yet, do you see the winds blowing any different way? I mean, look at sustainable aviation fuel.
Okay, let's just for an example. Everyone knows jet fuel is one of the last kind of fuel markets to be decarbonized, the kinds of subsidies the IRA is incentivized for SAF are just absolutely insane, so they're depending on the carbon intensity meaning the amount of carbon dioxide that gets created or I guess dispersed into the atmosphere per unit of production, depending on the carbon intensity of the SAF production, the subsidy will be between a $1.25 and a $1.75 a gallon.
As high as a $1.75 a gallon at the federal level. Then you have a bunch of US states also talking about giving secondary subsidies that are allowed to be double dipped by the way, for the exact same production, again, over a dollar a gallon. Like for clarity this ethanol right now, commodity ethanol trades at $2.30, $2.40 a gallon right now. If you can turn it into SAF, you're going to get what, 100, 150% margins and the pathway from turning fuel ethanol, fuel alcohol to sustainable aviation fuel. Yeah, you've got to crack a few molecules.
There's a chemical pathway to do it. You got to spend a bit of money, but it's just insane, and so do I think that subsidy is going to exist forever? No, but then I look at what other countries are doing, and look, the EU is mandating, you have to have a certain amount of sustainable aviation fuel within your blend as an airline by 2030. Japan just instituted some massive new mandates for having a certain percentage of sustainable aviation fuel.
There is a massive shortage of this stuff, so what I would say is, despite our best intentions, and kind of we're both investors with both kind of economically rational, we like to think that way, these subsidies they have a tendency to keep getting extended. They have a tendency to as long as the political will is there within the electorate, you can kick the can for quite a long time, and frankly because what I would say is this... to answer your question specifically, I'm much more bullish on the long-term SAF potential than I am on say the 45Z portion of the credits for carbon capture and sequestration specifically.
However, because CCS decarbonization of the ethanol molecule let's say, because that's a gateway to all these other SAF related subsidies, you're actually in a situation where even if the subsidy only the... that is the carbon sequestration subsidies only last for say 4 years, and at the moment some of these are scheduled to actually expire in 2027, so they do have to get their act together. Even after that, if you're not no longer getting the carbon sequestration subsidy, but you're getting $253 a gallon total for your SAF and you're making SAF from 27, 28, you're laughing.
You're absolutely laughing, so I'm actually much more comfortable underwriting kind of this long tail to SAF kind of institutionalized demand that given how crazy our political leaders are, but no, I mean, it's definitely one of the key risks. 1 of the key risks I would say if I was looking at this kind of sector in general, GPRE or Alto, whatever, a Republican sweep next year, there's probably one of the bigger risks because we all saw what McCarthy tried to do with the debt ceiling.
Obviously, if the Republicans sweep, then they're probably much less supportive of these kind of policies.
Andrew: You say that but a Republicant sweep also like a lot of the Republican senators are from the Midwest states like Chuck Grassley from... what's the state? Is it Indiana? Is that where he is from? Iowa. Iowa. He's like the leading proponent of RINs in all these types of subsidies because he's got tons of corn in his state, so Republicans, I mean, yeah, our vision of Republicans is probably like/spending/taxes getaway, but these things are really deeply ingrained in the Republican.
A lot of these subsidies are actually, it's a little bit bipartisan, because a lot of the republicans just want to subsidize their corn production, and a lot of the Democrats want to subsidize anything that is green or "green", so it is a risk, but it's interesting. Let me turn to the other big risk here, and that would probably be management, and I've got in my notes, I'm looking over here, you mentioned earlier, but one of my notes from reading their calls, I just have a quote that says, these guys are trying to do way too much a at once.
Just way too many capital project. I think management, and you published the letter this morning, we haven't heard back from them. There is a semi shareholder friendly, member on the board. There's been insider Biden. We can talk about all that, but I think management might look at this and say, "Hey, why are we going to sell now when the pot of gold is here and with 2 years of capital development, we can kind of realize that pot of gold."
Why are we going to sell for $5 per share today when 2 years from now with a little CapEx, we could be talking about hundreds of millions of EBITDA and we could be talking about selling for $2 billion or 20, or 25 or whatever the number is, and I just want to pause there and add on. You've got appendix 2 or 3 at the back end of your thing. The CEO here, he's been in charge for about 10 years.
I don't know if shareholder value has been a particular focus given the share price, but he's gotten paid a lot, and he doesn't own a crazy amount of stock versus how much he gets paid, so I could also say, "Hey, why sell before the pot of gold is really here." But the insider incentives might be, "Hey, let's just keep betting on the corn because we're"...This is a problem with a lot of companies. We're getting paid a lot, so why sell today when we can just keep making money?"
Jeremy: I mean, it's an excellent question. It's always the rub. I would say, look you sell because your shareholders get to a point where they're fed up and force you to sell. That's point 1. I mean, if you look at the register, let's look at the register, the largest disclosed, well, I'm at 1%, so it's not a huge position, but the largest that I can see, I don't have Bloomberg. I only have [inaudible]
Andrew: I'm looking at my Bloomberg now, so I'll fact check you on the spot.
Jeremy: The largest disclosed active shareholder, so not a passive index piece or whatever that I saw was like 2% of the company, 2.5% of the company, something like that. Look I've heard rumblings there may be other dis other large active shareholders who have not disclosed because they're not above the a hundred millionaire UM threshold that they have to disclose their position, and they might have a few percent of the company, but either way, this register is completely and utterly fragmented and open. That's point 1.
Point 2 is, if you look at the traded vole, this register has turned over twice this year alone. As I said, this stock peaked at about $6, $6.50 last year. My thesis is you can get at least $6.50 in a sale. You mean to tell me the register that has turned over 2 times in the last 6 months, probably 3 times in the last 9 months that there isn't support for what? A third more half the register where their cost basis is $3 to get a 100% premium and a certainty of value, as opposed to keep listening to the pied piper running the company and take his word for it that he can actually make the investments, and get them done in time and on budget.
Not actually have to kind of have a disaster before ethanol rolls over again, and kind of put the whole thing at risk because this is still a little bit levered. Look ultimately, I'm not always on my high horse with like, "Oh, the shareholders always get what they deserve." Certainly not like that, but there isn't a major shareholder here who's like, there isn't a family, this isn't a family controlled business, this isn't a controlled company. This is as frankly as open as it gets.
The register has turned over multiple times in recent months and it's eminently feasible that they could clear a 100, 150% premium from their cost. Like who's not going to certainty of value. I'm not talking about a 10% premium here. I mean this is serious premium, so I would think that shareholders will vote with their dollars first, and then in terms of the secondary, I guess the other point you made, why would they sell it when they can theoretically turn this into a massive cash cow?
I mean it goes back to our discussion on the politics. Yes, it appears to be a veritable bonanza right now, but there is always going to be pen stroke risk with these things. There is necessarily going to be this kind of, well what's happening next election cycle or next time the debt ceiling needs to be renegotiated, whatever. Like yeah they do have a window certainly the next few years. I mean IRA is highly unlikely to be touched during its initial kind of implementation now, so they have until 2027.
These guys didn't even publicly comment on the 45C tax credits in any of their docentation. 45Z is the heart and soul of the IRA in terms of value regarding decarbonization. They only talked about 45Q. 45Q is wildly insufficient. If you go back and look at the GPRE teaching, they go through the math on 45Z. Now this is the key provision and that you need to have your investments locked and loaded by 2027, and there is a big advantage to actually moving first because as the guys at GPRE discussed, if you move first, then you get on the pathway to these other kind of opening up SAF and what have you, ahead of everyone else.
That essentially means if 45Z does actually go away at the end of 2027, it doesn't get extended. You're still good to go, so the fairy fact that they've kind of been dragging their heels or I don't even know if they've been dragging their heels, being pulled in too many different directions and cannot focus on this opportunity properly, which I mean is completely utterly transformational, far more than any of the other projects they're working on, it doesn't lend them a lot of credibility in my view.
Andrew: You and I have a, I'll just call it a refiner investment in common. I don't want to mention here because we don't need to dive down that rabbit hole, but one thing that strikes me is when they saw a similar path to SAF. A similar path to renewable diesel, like lots of government support, all this sort of stuff. It's not like they shut the rest everything in the... rest of the business down and didn't do anything and burn it to the ground only, but they basically said everything else is, as steady state as is, we're going to make sure we run it, we are going to make... but the whole company is singularly focused on this one opportunity because it is so large.
I am kind of struck as you're basically saying here, like also 45Z I knew about it because I know of oil companies that have pipelines and they're like, "Hey, we're getting oil out of the Permian or whatever and because we're drilled down, like we've got access to geological formations that would be so great for 45Z." I'm simplifying a little bit or going out, but, they were like, "This is the best thing ever. We need to immediately start aggressively attacking it."
Here you have a company that is so perfectly situated for it and instead of like aggressively immediately, as soon as this comes out going all out at it, they're kind of saying, "Oh, we'll go after that, but we'll also try to increase our corn yield from 1% to 1.1%." And not that the other things are great, but it's to shareholders, all they should be talking about and focus on is this, because as you're saying, the opportunity is so, so large.
Let's see, just one other thing I wanted to raise about. I completely agree with you. Like this is a two hundred million company and I look at the board and the board in total owns 4% of the common. I mean, if this was a 4 billion company, 4% might be okay, but like whenever you've got a company under five hundred million and I ask them all, I've asked companies to invest in all the time. Like if you're under 500 million, you need to have a serious shareholder on the board.
Like come on, there's got to be a guy who owns 3%, 4%, 5% who's one focus is, "Hey, I get paid when the price goes up and shareholders make money." Because the rest of these guys, if you own 1% of a company, the CEO, he owns nine hundred thousand shares. Cool. That's 1.8 million. I think if I remember correctly, he makes 2 million per year. I'm kind of trying to flip through here, but it's like he's 75.
Jeremy: Yeah basically he does, yeah.
Andrew: Yeah. He's 75. He gets more money from salary and bonuses than he does here. He's not fully aligned with shareholders, so just to jump my iris there. We've covered a lot on Alto. Again, we got a lot of other questions on other stuff we can quickly bounce through, but and I think we've mainly covered everything. Again, your letter will be in the show notes. Anything else people should be thinking about with Alto here though?
Jeremy: No, I mean I think that covers it. Look, there's kind of a transformational story. These kind of historically bad commodity assets have been given a new lease of life largely through this carbon decarbonization opportunity. A lot of what you mentioned is correct in terms of management risk and a bit of pen stroke risk. Those are the kind of the 2 risks to kind of due diligence or think hard about if you are looking at this, but the value to acquire is very, very clear, very, very straightforward.
I should highlight, I did mention it in the letter, but given the amount of the register that has turned over, obviously I've spoken with a number of these investors, and I would imagine that presenting a market test where a competitive process results in something like 6 or above $6 a share in value presented to shareholders. I imagine that would be met extremely sympathetically by a plurality of the register. I'll just leave it at that.
Yeah, it's a relatively straightforward case in terms of the setup and the valuation, and the kind of the numbers argument, but the lingo around the industry and kind of the ethanol industry and now the decarbonization story is a little bit of a technical lingo around that, so people would have fun diving into that, but the actual setup part of it's pretty straightforward.
Andrew: Just one more thing. Even if this company would say, "Hey, we think there's a huge pot of gold at the end of this rainbow. We think shares can be worth $20 per share 3 years from now." Like you've got at least go out when you've got a asset that is this strategic and has been this undermanaged for so long, got to at least go out and do a market check and let your shareholders decide, "Hey, we went out, the best bid we got was $6 per share. Here's our capital markets day where we present our path to realizing $20 per share of value and here's why we think we should do it."
Like, you've got to do one of those 2 things, but you've at least got to present a clear picture of both sides. I guess we could probably figure out the $6. They've got to present a clear picture of where they think they can go so people can evaluate because the standalone just really doesn't work.
Andrew: Let's go to other things. One other Jeremy Raper special situation par, which I think is in a much better place today than it was even 3 weeks ago, but do you want to talk about what's been going on with par because I think I got about
Jeremy: Sure. I mean, look, I would love to try to remember when we last spoke about it. I assume it was, I think we did it
Andrew: Well the podcast. It was like a year ago, but you and me personally was maybe 2 weeks ago.
Jeremy: Okay. Yeah, so this is kind of finally coming into form, as usual with these things, there's a lot of kind of back and forth behind the scenes, which is difficult to talk about, so if anyone they wanted more color or whatever on Twitter, it's not that I'm ignoring it. Far from that, it's just very difficult, when you're talking with management and other stakeholders to give a play by play and blow by blow, you know what I mean? But now it's all kind of in the public domain, but, so essentially the company's decided to return call it 90% of their excess capital, their cash on hand.
They're going to pay a 40 cents distribution. In Australia the rules, they have to call a meeting for that kind of capital return. That meeting, they said that the documentation calling the meeting will be sent out in July. I assume that means you'll actually get the cheque. It's going to pass, obviously, you'll get the cheque in August, so 6 weeks or whatever, 7 weeks maybe, meaning, the stocks at 82 cents today, you're going to get 40 cents cash, that'll be a capital returns. There'll you no withholding, no nothing, so if you're foreigner's, it's totally fine.
They are getting a tax ruling from the Australian tax office to confirm that, so that's a bit of a holdup, and thereafter, you're essentially left with essentially the woodside earnout, and nothing else basically, and so look, I kind of made a few comments on Twitter. I would reiterate those once they've paid out almost all the cash, they've really defrase the risk that they're going to do anything idiotic and buy something stupid with the cash.
That was the key risk. Stocks rally, but I still get kind of, I mean, it's actually gone up a little bit more since I put out my last math, but probably about a 40% IRR from where we currently trade, to where I think is a very, very reasonable low end valuation. On the stub, on I should say on the woodside earnout, which is I think about, look very close to a dollar, maybe slightly under a dollar a share, so basically what's going to happen is this thing's trading at 82 cents a share. You'll get your 40 cents and assuming it trades at 42 cents, you have something trading at 42 cents for then residual 5 cents of cash, and an earnout worth 55 cents, basically.
Between 52 and 57 cents depending on your assumptions and what they select for, so is it going to trade at a 35 to 40% discount to the value of the earnout when that earnout is extremely likely to be monetized within 6 months or less? I guess that's for the market to decide. I don't think it will, there is no real reason for this entity to exist once they've paid out all the cash, so I assume they will monetize the earnout one way or another within the incident period. I think the question is less about them doing it now and more about what they get for it and how long it takes.
Even then you still get pretty... I mean you get very attractive kind of risk adjusted returns even if it takes nine months from today, and even if you run it with a 25% discount rate, you still get kind of like a 30% return, so it's pretty interesting.
Andrew: I was just going to say that's been such good work on your end. I mean, I think that might have been the first podcast we did, maybe the second podcast we we did, but we talked about it and that was a board that in my opinion was very recalcin to kind of do anything, and you obviously led the charge there on because they wanted to go buy something if I remember correctly. They had all this cash, they had the earnout and they were looking to stay as a going concern.
As you said, insiders don't own a lot of stock, it doesn't make sense to liquidate. It makes sense for them to keep it going so they can keep collecting a salary, and mainly you led a big charge here to say, "No, your stock is at 50 cents and you've got a dollar of cash and assets. We need to liquidate this sucker."
Jeremy: I appreciate it. Look it's taken definitely longer than I imagine. I mean, look, I first got involved in this early 2022 maybe January, February, 2022, so it's definitely taken a lot longer than I thought. As I'm learning these things tend to do, but it is gratifying to get I think the right outcome maybe on a slightly longer timeline, but the right outcome and to hopefully provide a lot of value for all my Comp Padres along the way.
Andrew: How are you looking at met coal these days?
Jeremy: Okay, that's a good one, look, probably not the guy to ask given I, called it pretty wrong. I mean, look, I was one of those guys who thought the Chinese reopening would kind of be a lot stronger than it was, color [inaudible] dissatisfied commodity bill. I mean look, I've lost the most within my book commodities has obviously been the most biggest pain point this year, more so met coal, more so coal and oil to be honest, these things were trading in insanely cheap valuations and guess what?
Spot went down and they're trading it even crazy at cheap valuations
Andrew: That's what been so crazy about these things. Like okay, when oil was... I'll just use rent numbers a hundred, all I would say every oil company was trading at a price that would imply like oil was trading at sixty five, and now that oil's trading at, let's call it seventy to make it more fun, but oil's trading at seventy, so actually the cash flows that they were trading at... where they were trading would've implied to discounts even after this 30% trial, but now all the companies, or most of them I follow are trading like oils at fifty or so, and it's just like, "Gosh darn it, I'm damned if I do, damned if I don't."
Maybe the answer is like these companies, there is absolutely a bad capital allocation discount baked into all these things, where everybody's worried that managements are going to just blow the massive cash flows they're generating even at these depressed-ish prices, but you're just looking at like, man, what's it going to take for me to make money on these things aside from these companies just like buying themselves out or something? I don't know.
Jeremy: Look, I mean I think David [inaudible] was right, didn't he say you're never going to get paid on this stock 3 rating, you're just going to have to get paid on the capital returns. They're going to have to pay the dividends, you'll get paid on the company eating itself. You're not going to get paid on, oh this is a coal company, it shouldn't trade at one times EBITDA, it should trade at 5 times EBITDA. That's just not going to happen, so by the way, I never really expected that to happen, but I thought it would hold its multiple at 3 times or whatever and no it went... so I own this Aussie stock SMR, Stan Moore Coal.
I trade it like one and a half times EBIT and by the way, that's not on peak earnings anymore because that's on, that's on met coal and all of a sudden there's like what, two twenty a ton or whatever. It's very respectably within the long term range at this point, like it's definitely still upper quartile but it's not super oil profits by any stretch. By the way, this is not unique. This is all kind of Alpha, you can look at Alpha, you can look at Arch, you can look at HCC, these all kind of trade one to two times EBIT, let's say.
Like one way I like to look at some of these is on a EV per ton basis, and so SMR actually bought these assets from BHP in a deal that was an absolute home run, they bought of their kind of twelve thirteen million tons per hour of production. They bought like 80% of it from BHP, so essentially an old BHP mind and they pay, a hundred and off off the top. $150, let's say they paid $150 a ton and now the implied EV is like $110 or something $115.
Andrew: It crazy that you look at... so the share prices almost invariably are up since the absolute COVID lows, but because these guys have generated so much cash and paid down so much debt, like many of them are actually trading not just at a discount to where they bought their assets when spot was way lower, they're trading at a discount to where they were trading at the absolute depths of COVID lows when people were like, "Oh, like economic activity is going to be down 10% forever and we'll never need coal again because our energy demand is so down that we can just use Nat Gas."
It is just absolutely wild how cheaply these things have done, and I do think people worry and I've been saying this for eighteen months, people worry, oh what happens when we hit a recession and demand goes down and prices drop. It's like that's when you want to wait for the recession to buy these names, and yeah, I guess that might be true, but people forget a lot of these names used to go into recessions with 2 times leverage, so earnings would go down so all of a sudden they'd be like ten times levered and as an equity player you'd just be hoping and praying they didn't reach a covenant, and need to file or go bankrupt.
Now all these guys have like negative 2 times leverage because a lot of them are net cash or at least they're net neutral, so if you go into a recession, there's no bankruptcy risk anymore, so you, you're talking about very different companies and yeah, I mean you're more in the coal names, I'm more in some of the oil and that gas names that instead of 2 times or 1 and a half times they trade for the shocking multiple of 3 times EBITDA or something, but it's just been, it's been very frustrating and 1 other rant I've been very surprised you have not seen.
I understand ESG, but a lot of these are very small. I've been surprised you haven't seen private equity firms come and buy these things out, hedge out the curve and just mint the cash flows.
Jeremy: Yeah. I mean I definitely think some of that's happened, will happen at some point. I mean I do think the next Glencore will get built this way. Yeah, there is some big bad doctor evil type dude who doesn't give to... can I swear on this podcast card? I'm not sure if I can. Sorry I won't.
Andrew: Yeah, you can.
Jeremy: They don't give 2 fudges about ESG so they're going to come along and buy up half these companies. What's interesting to me, I would say 2 points add to what you thought. I agree with most of what you said. I would say 2 things. 1, despite everything you say, I'm not necessarily throwing more capital at these valuations because as cheap and as irrational as current prices are, I had some chunky positions and I'm well down on some of them having traded a few of the thermo coal names quite well last year, so I'm okay on those.
Nevertheless, in met coal, I'm underwater fairly on those and I haven't been adding to them just because the opportunities out there are just crazy and stuff that's much more actionable. Like right now what's the catalyst? The catalyst essentially spot price stabilizers We do or we don't go into recession but spot price prices and they generate a shit look tons of cash flow and we get the cash flow back. I mean that's great but I'm I going to put to dedicate incremental capital there versus say a far time bound, I mean of course completely different liquidity profile, much smaller whatever.
This isn't for everyone, but things like, or something like an Alto where I can either hopefully generate a lot of value through my own work, or it seems like it's a much more kind of time sensitive, time bound way to not get in and out necessarily, but to kind of extract the value for want of a better word, so things like that. It's a lot of stuff like that to do versus this coal names that...
Andrew: What's the nice about being coal icon. You buy the stock and you can go be your own catalyst. That's the nice thing about being Jeremy Raper.
Jeremy: Yeah, what heavy lies the head that wears the crown and all that, but no it's just there are a lot of these opportunities where for whatever reason I just feel like there's a more, near term catalyst or ability to get that latent value out of the equity and into my pocket, versus some of these commodity names where, let's be honest, they're a dime a dozen? To your point, there's a whole swathe of Canadian ENPs and US ENPs and gassy names and coal names.
I mean probably there's like fifty of these names across commodities, where they're all trading insane valuations that may as well all move together when things stabilize, and picking between them is a little difficult and some will get picked off and maybe we'll be lucky enough to own those, but just a bit trickier. I feel like in some of the more special situations stuff that has been very fertile I should say. I'm not sure if you had any questions on it, but the special situation stuff has been very, very interesting, in the last kind of 6, 9 months and where I've been focusing most of my time.
Andrew: Did you see Lily announced the deal to buy... neither of us had any position. I can almost guarantee Lily announced the deal to buy Sigaling this morning. Did you see this thing?
Jeremy: No, I haven't been watching this thing.
Andrew: The stock was trading for $4 yesterday and Lily announced the deal, let me see if I got this right. I think it's $11 per share cash plus a CVR. It's 14.82 per share cash plus a CVR that could be worth like up to a hundred dollars per share. The stock went from 4 to twenty nine overnight. Anyway, I just mentioned it because you said, "Oh, you might get lucky to be a takeout." And I was like, "Man, I would like to be lucky enough to get a takeout like that Sigalong thing."
Jeremy: Well tomorrow when Valero buys Alto at $8 a share, we can rerun this podcast and laugh at each other
Andrew: $8 a share plus earnout for, $16 per share depending on how the 45Z credit come in. The ticker there was SGX if anybody's interested in that one by the way, but I strongly not either of us have a position there.
Jeremy: $8 a share plus a voucher for a free ethanol refill at any of the Valero gas stands in California.
Andrew: I love that. Or if gas prices go back to where they were last year, maybe just fill up your Hummer once or twice. Cool. Well hey Jeremy, it's been over an hour. This has been great. Look, I want to remind everyone the main focus of this podcast was Alto as we just ended up talking about link to Jeremy's letter will be in the show notes, especially if you have a position. Obviously Jeremy's going a little bit activist here where neither of us, especially Jeremy, are not trying to form a group or anything.
If you agree with what Jeremy says in his letter, I'll just say for him it would probably be worthwhile to shoot a note to the board, say, "Hey, I own ten thousand, fifty thousand, a hundred thousand shares. I agree. Let's run a market check. Let's at least see we've got a standalone plan. How's that value measure up against what a strategic would say, so I will say that for Jeremy. Jeremy, I think this might be your 10th podcast, so I appreciate you coming on and looking forward to the next one man.
Jeremy: Good, thanks for having me. It's always a pleasure. I appreciate it. Speak soon.
Andrew: Later buddy.