Citi and Blue Orca are battling it over Enviva $EVA stock. Citi is on the long side of the trade while Blue Orca is on the short side.
Blue Orca Short Argument
On October 12, 2022, Blue Orca Capital announced a short position in Enviva saying the company’s EBITDA is inflated, it will cut its dividend, and newly discovered and newly discovered data suggests that the Company is flagrantly greenwashing its wood procurement. Enviva claims to be a pure play ESG company with a self-funded dividend and cash flows to provide a platform for future growth, but this is nonsense on all counts, Blue Orca writes in a short report published on its website. The firm says Enviva is too leveraged and repeatedly needs to raise capital. Blue Orca says deteriorating cash conversion and unprofitability will drain it of cash next year. The company’s dividends are funded through capital raising, and it will be forced into further dilutive equity raises, more borrowing at punitive rates, or a significant dividend cut. Blue Orca expects the shares to contract significantly from current levels. Source: https://www.blueorcacapital.com/short-activism
Citi upgrades Enviva to Buy, says short report selloff overdone
On October 14, 2022, Citi analyst Ryan Levine upgraded Enviva to Buy from Neutral with a price target of $62, down from $79. After looking at the bearish arguments by Blue Orca, the analyst says shares of Enviva overreacted to the negative report. Management has consistently pointed out that some of its fiber came from timber that wouldn’t be harvested if not for Enviva, Levine tells investors in a research note. While a minority of the fiber, if there was regulation that eliminated this practice, the company would adjust its purchasing strategy slightly, says the analyst. Levine believes in the short run this would increase costs, but in the long run Enviva would likely benefit as the southeast U.S. is the marginal supply of this form of biomass. Further, the analyst does not believe that land-owners’ decisions to plant pinewood over hardwood signals that biomass isn’t ESG friendly. After the selloff, Levine is more bullish on Enviva shares.
Citi is trying to put Blue Orca in a short squeeze.
Enviva short report claims old news, says Raymond James
On October 12, 2022, a couple days before Citi upgraded to a Buy rating, Raymond James analyst Pavel Molchanov notes that short seller Blue Orca published a short report on Enviva that he blames for the stock’s outsized 20% selloff. We can divide the claims into two categories: ecological/environmental and financial. In terms of the ecological side, Blue Orca does not think wood pellets are green enough, but this repeats well-known critiques and the European Parliament just voted in favor of maintaining the role of biomass in the energy mix. On the financial side, the short seller’s claims are erroneous and the prediction of a dividend cut “makes no sense at all,” according to Molchanov, who has an Outperform rating on Enviva shares.
Does this mean that Raymond James got put into a long squeeze by Blue Orca and so they contacted their friends at Citi to help stop the bleeding?
Enviva Wood Fiber Resources
Enviva $EVA Stock Technical Analysis
Enviva $EVA stock is in a technical strong downtrend. The MACD is negative and so is the money flow. Long-term indicators suggest a continuation of the downtrend.