Midas: Clean Energy joins Brazil's ethanol boom

By This Is Money
Updated: 04:43 EDT, 10 April 2007

It is common knowledge these days that cars are bad for the environment. There is growing pressure on us all to drive less and use 'greener' vehicles.

Chancellor Gordon Brown even doubled the road tax on 4x4s in his most recent Budget and councils are also finding ways to punish these 'gas guzzlers'. In Brazil, however, the story is rather different.

For the past 30 years, it has been converting sugar into ethanol, an environmentally friendly source of energy that can be used instead of petrol or diesel. This has been so successful that nine out of ten new cars in Brazil are flexfuel, which means they can run on ethanol or petrol, or a mixture of both.

Domestic demand for ethanol is growing at 8% a year and Brazil is the world's largest and lowest cost producer of this fuel.

Clean Energy Brazil is an investment company providing access to the country's sugar and ethanol markets. The group raised £100m when it floated in December and has been using this to buy into sugar businesses in Brazil.

Unlike many investment vehicles, Clean Energy acquires significant stakes in the very companies that grow and refine sugar and ethanol. This gives it a substantial advantage because it does not have to buy the products it needs from third parties.

The company is chaired by Antonio Monteiro de Castro, the chief operating officer of British American Tobacco, and the board and management include a number of individuals with extensive experience of and relationships with Brazil's sugar market.

Clean Energy is ambitious and operates in a fast-growing industry. Not only is there rising domestic Brazilian demand for ethanol, but sugar prices are expected to increase worldwide in the coming years and Clean Energy offers access to this market too.

At present, countries such as the US charge punitive tariffs on Brazilian ethanol, but if these were lifted, the export potential would be huge.

In the meantime, Clean Energy is focusing on the Brazilian market and is keen to increase its stock market value from just over £100m to £500m. It is likely to approach investors for cash this summer to help fund growth but it is also promising to pay a maiden dividend of 5p this year.

•• Midas verdict: Ethanol is a fuel of the future, Brazil produces it cheaply and in large quantities and Clean Energy has a strong foothold in the market. The shares are 106p but should show considerable momentum over the medium term. Buy and hold.

Midas update: Midas recommended shares in IT recruitment company InterQuest in mid-January, when the shares were 80p.

Demand for IT specialists has been soaring and InterQuest shares have followed suit. They are now 136p, a 70% gain in less than four months.

InterQuest delivered its 2006 results at the end of last month and these showed a 61% rise in pre-tax profits to £2.1m and a more than doubling of turnover to £57.2m.

The company, which works with businesses in both the private and public sectors, is run by IT recruitment expert Gary Ashworth, who has proved successful in the past at building and selling businesses.

He is keen to work the same magic at InterQuest and he expects substantial growth in the next two years, both organically and via acquisitions.

IT recruitment is mushrooming as the sector becomes an increasingly integral part of business life, and momentum is expected to persist until at least the end of 2008. On the acquisition front, InterQuest is studying four possible deals, at least one of which should materialise by the summer.

•• Midas verdict: Ashworth has an entrepreneurial spirit and the shares could deliver further pleasant surprises this year and next. The recent growth rate is unlikely to persist though, so all but the most intrepid shareholders would be wise to book some profit now. Sell half.