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First time profitable

Carbios 11 April 2017 Update
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Carbios

First time profitable

Results update

Alternative energy

11 April 2017

Price

€6.23

Market cap

€24m

Net cash (€m) at 31 December 2016

3.8

Shares in issue

3.8m

Free float

11%

Code

ALCRB

Primary exchange

Alternext

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(11.5)

(24.8)

(42.8)

Rel (local)

(13.7)

(28.5)

(51.9)

52-week high/low

€11.3

€6.2

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 events

H1 results

September 2017

Analysts

Catharina Hillenbrand-Saponar

+44 (0)20 3077 5700

Roger Johnston

+44 (020 3077 5722

Carbios is a research client of Edison Investment Research Limited

Carbios reported a profit, for the first time in its history, in 2016. First commercial revenues from the Carbiolice JV were the key driver behind the strong results. We have upgraded our forecasts and estimate that the company is funded through 2017 but may require additional financing in 2018. Our valuation range remains unchanged at €23-37 per share.

Year
end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/15

0.8

(4.0)

(81.3)

0.0

N/A

N/A

12/16

8.9

3.6

131.9

0.0

4.7

N/A

12/17e

1.2

(4.0)

(71.9)

0.0

N/A

N/A

12/18e

2.0

(3.2)

(64.1)

0.0

N/A

N/A

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

Profits for the first time

Carbios has turned profitable for the first time in its history. It reported 2016 revenues of €8.9m, operating income of €3.5m and net income of €5.0m, all of which are above our expectations. First commercial revenues from the new joint venture, Carbiolice, were the most important element for the positive earnings. Cash management was also strong, with lower than expected cash outflows of €5.0m, and gross cash at the year-end stood at €3.98m. With this and additional grant income of €1m yet to be received in 2017, the company can fully cover cash outflows of c €3m (pre-grant inflows) for the year.

New revenues, but future financing requirement

We have updated our 2017 forecast and introduce 2018 numbers. Our 2017e EPS loss falls to €0.72 from €0.93 on the back of higher commercial revenues. Carbios’s first commercial JV, Carbiolice, which was the most important milestone during 2016, is becoming ever more important as it is now a source of revenues. Besides that, we also include PET recycling revenues from 2017. Nevertheless, as grant funding comes to an end this year, we estimate that cash outflows will exceed available cash of €1.6m as per our forecast for end 2017. We therefore expect the company to require additional financing, eg other grant funding or debt, or to step up commercial revenues beyond our forecast, or a combination of all three.

Valuation: Unchanged at €23-37 per share

We value Carbios using a DCF methodology with risk-weighted cash flows for its most important processes. This yields a fair value range of €23-37 per share based on different discount rates, with a base case value of €26/share (WACC of 20%). PET, one of the most advanced processes, is the most important component, accounting for 53% of our fair value.

FY16 results: Profitability for the first time

In FY16, revenues were €8.9m, operating profit came in at €3.5m and net income at €5.0m. While revenues were slightly short of our estimate of €9.2m, both EBIT and net income were ahead, 12% and 6%, respectively. Remarkably, the company generated first licensing revenues, €8m, from its new joint venture, Carbiolice. Given the short time of just six months since Carbiolice’s inception, this shows very strong execution. Other revenues principally consisted of grant funding in line with achieved milestones, namely the conclusion of key stage four and a payment for stage five, the last stage of the project. As expected, costs increased with the scaled-up business. However, the company’s EBIT margin was 500bp points above our estimate, reaching 38%. Cash flow was also stronger than expected with €4.5m cash flow from operations, compared to our €3.7m estimate. Total cash outflow, including the investment in Carbiolice, was €5.6m, better than our estimate of €5.4m. With that, the company had cash of €4m (gross) at end December. Its cash burn rate is about €300k per month, which means that cash at hand broadly covers outflows for this year. In addition, the company is still to receive €1m of remaining grant payments for the Thanaplast project for this year before the project completes in 2017.

Exhibit 1: FY16 results

€000s

FY16a

FY16e

change y-o-y

FY17e

Revenues

8,870

9,200

999%

1,152

EBIT

3,538

2,986

N/M

(4,066)

Net income

4,947

4,661

N/M

(2,698)

Net cash flow

(5,097)

(5,383)

49.3%

(2,353)

Cash (gross) at end of period

3,987

3,628

-55.7%

1,634

Source: Carbios accounts, Edison Investment Research

Update to our forecasts

We have updated our FY17 forecasts to reflect the reported numbers. We now include €750k in collaborative revenues from the Carbiolice JV and €300k in upcoming PET recycling partnership revenues, which has just been confirmed by the company (see above), and increase our forecast for R&D tax credits. This increases our revenue forecast to €1.2m. With cost estimates largely unchanged, this now feeds through to an EBIT loss of €4.1m on the basis of total operating expenses of c €5m, and to a net loss of €2.7m. With that, we estimate gross cash at hand of €1.6m at the end of 2017.

Exhibit 2: Forecast changes

€000s

2017e

2018e

Old

New

New

Revenues

653

1,152

1,950

EBIT

(4,379)

(4,066)

(3,211)

Net income

(3,487)

(2,698)

(2,402)

EPS (€)

(0.93)

(0.72)

(0.64)

Operating cash flow

(2,658)

(2,399)

(2,288)

Net cash flow

(3,183)

(2,353)

(3,292)

Net cash/(debt)

314

1,506

(1,734)

Source: Carbios accounts, Edison Investment Research

We also introduce our 2018 forecasts. Our revenue estimate of €2m comprises revenues from Carbiolice, in addition to other commercial PET recycling revenues. As the Thanaplast project will conclude in 2017, there will be no more subsidies revenues. As such, we expect the company to be loss-making as the cost base exceeds revenues. We forecast an EBIT loss of €3.2m and a net loss of €2.4m.

As initial grant and subsidies financing will come to an end this year, and cash flows are still negative, we calculate that Carbios will require further financing in 2018, be it other grants, debt or other sources. We forecast a net cash outflow of €3.3m in FY18, which exceeds estimated cash of €1.6m at end-2017. That said, should the company be able to step up commercial revenues, it might reduce financing requirements.

Industrial and commercial steps ahead

The company has delivered impressive progress through 2016. Most importantly, it agreed its first joint venture, Carbiolice, in partnership with Limagrain and Bpifrance (see our outlook note of 28 September 2016 and discussion above), and has shown its first positive commercial impact. It has also strengthened its intellectual property: it has been granted two patents in the US, one for enzyme inclusion in plastics and one for PLA degradation. Carbios has also achieved a new patent in China for enzymatic biodegradation of PLA, which underpins its market expansion strategy in agricultural mulching films. Furthermore, it has taken forward its PLA production process by validating its in vivo enzymatic polymerisation process. Lastly, the company has taken a step forward by adapting the polyester biorecycling process for crystalline PET material, which is key for the very important plastic bottle market, one of Carbios’s potential future growth markets.

The company now needs to drive further commercial roll-out to grow commercial revenues as Bpifrance/Thanaplast financing will come to an end in 2017 and/or contemplate additional financing from 2018.

Exhibit 3: Financial summary

Year end 31 December

€000s

2013

2014

2015

2016

2017e

2018e

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

900

664

837

8,870*

1,152

1,950

Cost of Sales

(3,164)

(2,912)

(3,145)

(2,980)

(2,831)

(2,774)

Gross Profit

(2,264)

(2,248)

(2,308)

5,890

(1,679)

(824)

EBITDA

 

 

(3,077)

(3,283)

(3,896)

3,761

(3,824)

(2,976)

Operating Profit (before amort. and except.)

 

 

(3,116)

(3,364)

(4,062)

3,538

(4,066)

(3,211)

Intangible Amortisation

0

0

0

0

0

0

Exceptionals

9

15

(23)

0

0

0

Other

0

0

0

0

0

0

Operating Profit

(3,107)

(3,349)

(4,085)

3,538

(4,066)

(3,211)

Net Interest

(0)

48

78

88

27

42

Profit Before Tax (norm)

 

 

(3,116)

(3,316)

(3,984)

3,626

(4,040)

(3,170)

Profit Before Tax (FRS 3)

 

 

(3,107)

(3,301)

(4,007)

3,626

(4,040)

(3,170)

Tax

961

1,091

936

1,321

1,342

768

Profit After Tax (norm)

(2,155)

(2,225)

(3,048)

4,947

(2,698)

(2,402)

Profit After Tax (FRS 3)

(2,146)

(2,210)

(3,071)

4,947

(2,698)

(2,402)

Average Number of Shares Outstanding (m)

3.8

3.8

3.8

3.8

3.8

3.8

EPS - normalised fully diluted (c)

 

 

(57.8)

(59.3)

(81.3)

131.9

(71.9)

(64.1)

EPS - (IFRS) (c)

 

 

(57.2)

(58.9)

(81.9)

131.9

(71.9)

(64.1)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

N/A

N/A

N/A

EBITDA Margin (%)

N/A

N/A

N/A

42.4

N/A

N/A

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

N/A

N/A

N/A

39.9

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

243

1,048

1,665

11,270

11,858

12,668

Intangible Assets

72

130

231

371

601

796

Tangible Assets

14

740

1,258

1,211

1,569

2,183

Investments

157

178

176

9,688

9,688

9,688

Current Assets

 

 

16,113

12,684

10,377

6,162

3,647

2,043

Stocks

0

20

12

15

16

15

Debtors

1,401

1,402

1,224

1,945

1,782

1,813

Cash

14,598

11,099

9,011

3,987

1,634

0

Other

114

163

130

215

215

215

Current Liabilities

 

 

(1,110)

(196)

(337)

(494)

(415)

(366)

Creditors

(1,110)

(196)

(337)

(494)

(415)

(366)

Short term borrowings

0

0

0

0

0

0

Long Term Liabilities

 

 

(680)

(474)

(571)

(674)

(624)

(2,281)

Long term borrowings

(457)

(152)

(222)

(178)

(128)

(1,785)

Other long term liabilities

(223)

(322)

(349)

(496)

(496)

(496)

Net Assets

 

 

14,566

13,062

11,134

16,264

14,466

12,064

CASH FLOW

Operating Cash Flow

 

 

(1,532)

(3,546)

(2,595)

4,515

(2,399)

(2,288)

Net Interest

(0)

48

78

88

27

42

Tax

0

0

0

0

0

0

Capex

(187)

(867)

(786)

(329)

(830)

(1,045)

Acquisitions/disposals

0

0

0

(9,500)

0

0

Financing

13,500

1,171

1,145

129

850

0

Dividends

0

0

0

0

0

0

Net Cash Flow

11,781

(3,194)

(2,158)

(5,097)

(2,353)

(3,292)

Opening net debt/(cash)

 

 

(2,360)

(14,141)

(10,947)

(8,789)

(3,809)

(1,506)

HP finance leases initiated

0

0

0

0

0

0

Other

0

0

0

117

50

51

Closing net debt/(cash)

 

 

(14,141)

(10,947)

(8,789)

(3,809)

(1,506)

1,734

Source: Carbios accounts, Edison Investment Research. Note: *FY16 revenues include an €8m non-cash payment treated as licensing revenues as per management guidance; this non-cash payment has been adjusted in the operating cash flow accordingly.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Carbios and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Carbios and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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