Darling International Inc

DAR : NYSE : US$21.47
BUY 
Target: US$25.00

COMPANY DESCRIPTION:
Darling International is a leading provider of rendering and bioresource solutions to agriculture and industrial
markets.
All amounts in US$ unless otherwise noted.

Sustainability — Bioresources
 MAINTAIN BUY, $25 TARGET
Investment recommendation
The bold strategic transformation continues, as Darling executes well through a commodity reset and positions the company into a truly global growth platform of value-added food, fuel, feed and pharma ingredients (with lessening commodity exposure). We like the recent moves (Rothsay in our numbers, Vion not yet), and reiterate our BUY recommendation.
Investment highlights
 Diamond Green Diesel (DGD)
Production is at nameplate (~9300 Bbls/day) and margins stay favorable, even as Friday’s RFS ruling (disappointing, but we expect DGD to take share) and pending Vion deal keeps shares volatile.
 We’re impressed with the Valero expertise (and staff) that runs this plant (via the JV) from engineering to feedstock procurement and fuel distribution. In our view, feedstock type, price and prep are the key. The initial success (and potential future demand from the Californian low carbon fuel market, for example) begins to drive the early idea of capacity expansion (or even plant #2).
 Next catalyst likely comes with the announcement of the Vion financing structure, perhaps into calendar year-end.
Valuation
Our 12-month price target of $25 is derived by applying a ~10x EV/EBITDA multiple to our CY14 estimate of $385M.
Risks
Commodity price fluctuations, integration activities, plant execution risk.

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