Advanced Emissions Solutions ($ADES) — 3Q21 Update (2/17/22)

Advanced Emissions Solutions

$ADES has a complicated backstory and business model. They were “selling” tax treaties tied to coal generation that allowed buyers to reap lucrative tax credits. That business had a limited lifespan as those tax credits are set to expire.

A few years ago, they redirected some of the cash from the tax credit business into another coal-exposed mining business. That segment is finally starting to generate some meaningful revenue and EBITDA following some contract wins with Cabot.

There are 2 factors that make it an interesting buy today:

  1. Huge net cash balance sheet — Going into 1H22, they should have $4.50-5/share in net cash on a $6.40 stock price
  2. Pursuing strategic alternatives — With the tax business winding down, they are exploring options for the remaining company. The remaining business generated $57m in 9M revenue and $6.6m in 9M EBITDA.

There haven’t been any updates on the strategic review since the Q3 announcement other than to say “things are progressing nicely.”

Again, this may not be a huge upside situation but with a relatively safe balance sheet and an ongoing sale process, the likelihood for a good return with minimal risk is there.