Investment fund Clean Energy Brazil (CEB) offers a London equity window on domestic Brazilian demand for ethanol and the longer-term global ethanol market, as well as the exciting international sugar market.

Having conceived the CEB concept (and lined up one of the biggest professional teams of managers and advisers working in the Brazilian sugar/ethanol sector), Numis then raised £100 million on AIM for the fund by way of a placing, at 100p in December.

Monies raised were swiftly earmarked for investment in ‘integrated’ sugar and bioethanol assets (ethanol comes from sugarcane) with associated greenfield projects. A ten-year fund, investors might even expect CEB to come back to the market for further funds for investment in the not-too-distant future.

Energy equation

I recently met with Peter Thompson, chairman of investment adviser Temple Capital Partners and leader of the Brazil team at adviser Czarnikow, the sugar broker acting for 30 per cent of the Brazilian sugar/bioethanol market that lends its local knowledge to the fund. He brought me up to speed on a number of surprising facts about sugar cane, Brazil and sugar cane-derived bioethanol.

Rather surprisingly, I was informed that this biofuel is already firmly established as a key part of Brazil’s energy equation, making up 30 per cent of Brazil’s non-diesel road fuel consumption with full Brazilian Government backing. Brazilian drivers are big on ‘flex-fuel’ cars, which run on any combination of petrol and ethanol and which are growing in popularity.

‘Eighty per cent of all new cars in Brazil are flex-fuel,’ says Thompson, ‘and they are boosting demand for Brazilian ethanol domestically.’ He says their popularity hasn’t gone unnoticed elsewhere, with manufacturers in Europe and the US looking to develop flex-fuel cars too.

Dramatic price upside

In addition, a major shake-up of the sugar sector is playing into Clean Energy Brazil’s hands. Recent reform of the European sugar regime has strengthened Brazil’s already dominant position as a global sugar exporter. EU subsidised exports have historically kept a lid on prices and now that they are gone the Brazilian industry should enjoy some dramatic price upside. Brazil’s sugar and bioethanol industries are benefiting from ‘growing awareness that cars fuelled by ethanol from sugar can be part of the solution to global warming,’ says Thompson, ‘and even without climate change, ours is a business that stands on its own two feet.’

His plan is to build Clean Energy Brazil into a business with more than 30 million tonnes of annual sugar cane-crushing capacity. As scale and critical mass grow, Clean Energy Brazil could ‘become an attractive target for future energy investors’.

Unlike many green/renewable stories, Clean Energy Brazil is far from blue-sky stuff, given the lengthy history of the sugar industry in Brazil as well as the recent success of the flex-fuel story. Furthermore, a 5p dividend for 2007 (representing a yield of five per cent at the placing price) with the potential for significant dividend increases thereafter has already been flagged, demonstrating this is a real company with assets that will be throwing off cash. Growth in the value of the fund’s assets as well as quoted warrants (on a one-for-four basis) trading at 19.5p, add further investment appeal to the mix.

Tellingly, star income fund manager Neil Woodford at INVESCO was one of the backers of the float, and added gravitas is provided by the presence of BATS (British American Tobacco) high-flyer Antonio Monteiro de Castro as non-executive chairman. Watch this space.