PowerHouse Energy Group (PHE); reports ongoing commercialisation of DMG® process

Acceleration of development visible in results

Carbios 11 April 2016 Update

Carbios

Acceleration of development visible in results

Full year results

Alternative energy

11 April 2016

Price

€10.9

Market cap

€41m

Net cash (€m) at 31 December 2015

8.8

Shares in issue

3.8m

Free float

11%

Code

ALCRB

Primary exchange

Alternext

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.1)

(12.7)

(18)

Rel (local)

(3.5)

(12.3)

(3.1)

52-week high/low

€13.67

€10.10

Business description

Carbios develops enzyme-based processes for biodegradation and bioproduction of plastics, with a long-term aim of displacing current recycling and production practices.

Next event

H116 results

September 2016

Analysts

Catharina Hillenbrand-Saponar

+44 (0)20 3077 5700

Roger Johnston

+44 (0) 20 3077 5722

Carbios is a research client of Edison Investment Research Limited

Carbios is accelerating development to reach the industrialisation stage of its biodegradation and bioproduction processes for plastics. 2015 results were characterised by the impact of expansion on operating expenses. The company has reported an acceleration of net losses to €3.1m. Nevertheless, cash outflow remained under control at €2.2m. Net cash of €8.8m leaves the company well-funded to conclude the Thanaplast project and move to a stage where it generates commercial revenues. Our valuation range remains unchanged at €23-37 per share.

Year end

Revenue
(€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/14

0.7

(3.3)

(59.3)

0.0

N/A

N/A

12/15

0.8

(4.0)

(81.3)

0.0

N/A

N/A

12/16e

0.6

(5.5)

(111.7)

0.0

N/A

N/A

12/17e

0.7

(4.4)

(93.1)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Results show evidence of expansion

Carbios has reported 2015 results that were characterised by the impact of faster than anticipated development. Revenues rose to €837k on the back of catch-up subsidy payments. Losses accelerated beyond our forecast as a result of the aforementioned speedier expansion: EBIT loss was €4.1m (Edison €3.6m) and net loss €3.1m (Edison €2.7m). Nevertheless, net cash outflow was in line with our forecast, at €2.2m. The company finished the year with net cash of €8.8m.

Updates to our forecasts

We have updated our forecasts to reflect the most recent numbers. Our 2016 EBIT loss increases to €5.6m (from €4.0m) and our net loss to €4.2m (from €3.3m). We now forecast capex of €570m for IP as well as industrial assets. That leaves the company with gross cash of €4.3m (net cash of €4.1m) at the end of 2016, according to our forecast. With this, we estimate the company is funded through to the end of the Thanaplast project in 2017. After that, it will need to have progressed to such a stage that it can generate joint venture and/or licensing revenues.

Operational progress delivered

Carbios has delivered important progress in research, industrialisation and at corporate level. It has achieved pre-pilot scale biodegradation, biorecycling and bioproduction of PLA material; successful depolymerisation of PET material, one of its most important future applications; and has strengthened its patent portfolio. It has further enhanced its scientific expertise with several appointments.

Valuation: Unchanged €23-37 per share

As Carbios is an early stage business, we value it on a DCF-based methodology with risk-weighted cash flows for its most important processes. Our view on licensing deals is unchanged, and our valuation range remains €23-37 per share.

Expansion is visible

Evidence of expansion in results

Carbios has reported results that were characterised by the impact of speedier than anticipated development towards scaling up. Revenues were €837k, above our forecast of €508k as catch up subsidy payments from 2014 came through. Subsidies made up the bulk of revenues. They covered the conclusion of stage three and launch of stage four of the Thanaplast project. There were also subsidies for recruitment from the Auvergne region.

Costs rose faster than we expected as the company has stepped up R&D expenses and hiring as a consequence of faster than anticipated development. Headcount has increased from 12 to 17. We note that the accelerated R&D spend in particular is targeted at getting the company to industrialisation from 2017. It will need to reach industrialisation and commercialisation stage by that time to generate industrial revenues as grant funding comes to an end then. As a result, the company’s operating loss of €4.1m was greater than our forecast €3.6m. Consequently, the company also reported a steeper than expected net loss of €3.1m (Edison €2.7m). Despite higher than expected capex, also a result of accelerated progress, cash consumption was well controlled, at €3.3m (pre financing) and broadly in line with our forecast of €3.1m. Net cash outflow was €2.2m. Consequently, the company finished 2015 with €8.8m of cash.

Updated forecasts

Carbios’s revenues are determined by the grant and subsidies schedule for the Thanaplast project. Our top line increases slightly: We have marginally increased our revenue forecast as we believe the company could continue to develop quickly. Further fast development would increase spend and as a result subsidies (which are connected to outlays). Because of the increased cost base from the 2015 expansion, operating costs have also increased. This leads to our forecast operating loss rising to €5.6m (from €4.0m). After accounting for ongoing R&D tax credits, our net loss increases to €4.2m (from €3.3m).

We have also increased our capex forecast to reflect ongoing investment in research, development of intellectual property, as well as tangible assets (labs and production units). We now expect capex of €736m in 2016. That will leave the company with €4.3m of gross cash at the end of 2016 and net cash of €4.1m. We estimate that this will see Carbios through to the end of the Thanaplast project in 2017. The company will then need to generate revenues from commercial activities, ie joint ventures and/or licensing.

Exhibit 1: FY15 results and updated forecasts

2015

2016e

2017e

Actual

Est.

Old

New

Old

New

Revenues (€000s)

837

508

410

600

511

653

EBIT (€000s)

(4,062)

(3,577)

(3,995)

(5,596)

(4,406)

(4,387)

Net income (€000s)

(3,071)

(2,720)

(3,288)

(4,188)

(3,574)

-3,492

EPS (€)

(0.82)

(0.73)

(0.88)

(1.12)

(0.94)

(0.93)

Operating cash flow (€000s)

(2,629)

(2,726)

(3,305)

(4,341)

(3,285)

(2,835)

Net cash flow (€000s)

(2,158)

(3,129)

(3,705)

(4,707)

(3,607)

(3,360)

Net cash (€000s)

8,789

7,818

4,113

4,122

506

812

Source: Carbios, Edison Investment Research


Operational highlights

Carbios has taken several key steps in research, industrialisation and corporate structure.

Research progress continues according to plan, if not slightly ahead of plan. The company has successfully concluded stage three of the Thanaplast project, ie achievement of pre-pilot scale biodegradation, biorecycling and bioproduction of PLA material. It has now entered stage four with the launch of pre-industrial production. It has further ramped up a pilot plant for plastic film production. In addition, the company has achieved depolymerisation of commercial amorphous PET material into original monomers. The monomers showed identical characteristics to those obtained through conventional hydrocarbons based processes. This is a very important step as it is the base for Carbios eventually delivering product that allows for a circular economy in plastics whereby monomers can be used to produce new plastics without loss of material or quality. PET applications will be some of the most important end markets for the company. The specificity of the product also allows for targeted future IP protection.

The company has strengthened its intellectual property. It has applied for four new patents and acquired a suite of new patents. It now has 17 patent suites with 50 individual patents that cover its key areas of activity, biodegradation, biorecycling and bioproduction.

Carbios has also made some key hires, with the appointment of Professor Alain Marty as scientific director and three new members to its science committee.

Valuation: Unchanged €23-37 per share

We value Carbios on a DCF-based methodology with risk-weighted cash flows for the company’s most important processes. Our valuation range remains unchanged, at €23-37 per share.

Exhibit 2: Financial summary

Year end 31 December

€'000s

2013

2014

2015

2016e

2017e

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

900

664

837

600

653

Cost of Sales

(3,164)

(2,912)

(3,145)

(4,089)

(2,862)

Gross Profit

(2,264)

(2,248)

(2,308)

(3,489)

(2,209)

EBITDA

 

 

(3,077)

(3,283)

(3,896)

(5,344)

(4,119)

Operating Profit (before amort. and except.)

 

 

(3,116)

(3,364)

(4,062)

(5,596)

(4,387)

Intangible Amortisation

0

0

0

0

0

Exceptionals

9

15

(23)

0

0

Other

0

0

0

0

0

Operating Profit

(3,107)

(3,349)

(4,085)

(5,596)

(4,387)

Net Interest

(0)

48

78

103

27

Profit Before Tax (norm)

 

 

(3,116)

(3,316)

(3,984)

(5,493)

(4,360)

Profit Before Tax (FRS 3)

 

 

(3,107)

(3,301)

(4,007)

(5,493)

(4,360)

Tax

961

1,091

936

1,305

868

Profit After Tax (norm)

(2,155)

(2,225)

(3,048)

(4,188)

(3,492)

Profit After Tax (FRS 3)

(2,146)

(2,210)

(3,071)

(4,188)

(3,492)

Average Number of Shares Outstanding (m)

3.8

3.8

3.8

3.8

3.8

EPS - normalised fully diluted (c)

 

 

(57.8)

(59.3)

(81.3)

(111.7)

(93.1)

EPS - (IFRS) (€)

 

 

n/a

(0.6)

(0.8)

(1.1)

(0.9)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

N/A

N/A

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

243

1,048

1,665

1,983

2,717

Intangible Assets

72

130

231

471

732

Tangible Assets

14

740

1,258

1,336

1,809

Investments

157

178

176

176

176

Current Assets

 

 

16,113

12,684

10,377

5,994

2,093

Stocks

0

20

12

22

16

Debtors

1,401

1,402

1,224

1,538

1,003

Cash

14,598

11,099

9,011

4,304

944

Other

114

163

130

130

130

Current Liabilities

 

 

(1,110)

(196)

(337)

(360)

(235)

Creditors

(1,110)

(196)

(337)

(360)

(235)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

(680)

(474)

(571)

(531)

(481)

Long term borrowings

(457)

(152)

(222)

(182)

(132)

Other long term liabilities

(223)

(322)

(349)

(349)

(349)

Net Assets

 

 

14,566

13,062

11,134

7,086

4,094

CASH FLOW

Operating Cash Flow

 

 

(1,532)

(3,498)

(2,517)

(4,341)

(2,835)

Net Interest

(0)

0

0

103

27

Tax

0

0

0

0

0

Capex

(187)

(867)

(786)

(570)

(1,001)

Acquisitions/disposals

0

0

0

0

0

Financing

13,500

1,171

1,145

100

450

Dividends

0

0

0

0

0

Net Cash Flow

11,781

(3,194)

(2,158)

(4,707)

(3,360)

Opening net debt/(cash)

 

 

(2,360)

(14,141)

(10,947)

(8,789)

(4,122)

HP finance leases initiated

0

0

0

0

0

Other

0

0

0

40

50

Closing net debt/(cash)

 

 

(14,141)

(10,947)

(8,789)

(4,122)

(812)

Source: Carbios accounts, Edison Investment Research

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London +44 (0)20 3077 5700

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United Kingdom

New York +1 646 653 7026

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10167, New York

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