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Research: Industrials
Carbios
Written by
Carbios |
Technology milestone achieved |
Operational update |
Alternative energy |
9 December 2015 |
Share price performance
Business description
Next event
Analyst
Carbios is a research client of Edison Investment Research Limited |
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For Carbios, the most recent achievement of successful depolymerisation of PET material into original monomers is an important step towards scaling up its plastic recycling and sustainable plastics production technology. PET is the most advanced of the company's processes and a very important future end-market. This business represents 53% of our €23-37 per share valuation range. Our forecast and valuation remain unchanged, as it is in line with our expectations on stepwise progress.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/13 |
0.9 |
(3.1) |
(57.8) |
0.0 |
N/A |
N/A |
12/14 |
0.7 |
(3.3) |
(59.4) |
0.0 |
N/A |
N/A |
12/15e |
0.5 |
(3.6) |
(72.5) |
0.0 |
N/A |
N/A |
12/16e |
0.4 |
(4.0) |
(87.7) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments.
Success in PET technology
Carbios has achieved important success with the first time full depolymerisation of commercial PET (polyethylene terephthalate) material. The company has depolymerised 100% of sample PET material and regenerated original monomers that display characteristics and quality identical to those obtained by fossil energy base processes.
PET is a key future revenue driver
The global PET market is forecast to grow by 4-5% pa over the next five to 10 years and represents one of the most important applications for plastics. Bottling and packaging are key growth drivers. We forecast that Carbios will achieve PET-related revenues of €66m by 2025 on the basis of our assumed 6% global market share. We expect the company to conclude first licensing deals in 2016-17.
Valuation: Important contributor to DCF value
Our financial forecast and valuation remain unchanged, as the company’s achievement is line with the stepwise progress we expect the company to make towards industrialisation. It does not alter our expectations on the timing of grant revenues or licence deals at this stage. We value Carbios using a DCF methodology with risk-adjusted cash flows for its most advanced processes. PET represents 53% of our segment-based DCF valuation of €23-37 per share. We believe the current share price only reflects PET as the most advanced process and none of the other potential end-market opportunities, which is natural as they are not as far advanced. However, progress on PET will lead to very swift advance on the other processes as they are adaptations of the PET-based process. Such adaptations can lead to step changes for the string of other applications very quickly, as it is PET that will generate the prime learning effects. As the company progresses further with its PET process, we also expect cash flows to de-risk, which should contribute to closing the value gap between the share price and our fair value range.
A step closer to an important end-market
Milestone towards scaling up PET process
Carbios develops potentially disruptive technology for plastics’ end of life, with the end goal of fully destructible plastics. It has delivered an important milestone in its technology development, in achieving full depolymerisation of PET the first time. The process, which has rendered the material into its original monomers, terephthalic acid (TPA) and ethylene glycol (EG), was achieved for commercial PET material. The monomers regenerated by Carbios displayed identical characteristics and quality to those obtained by fossil energy-based processes, which is key to the competitiveness of the process. Such monomers can subsequently be used to produce new plastics, creating a circular plastics economy. The company has therefore delivered proof that its process can be used to produce virgin PET on the basis of the monomers obtained. Furthermore, it has shown that there is no loss of value in the recycled material. It is important that this was selective depolymerisation, which facilitates isolating the process to a specific product. That is also important for future IP protection, as well as the development of a specific range of processes that can be out-licensed.
PET is a key end-market
This is an important step as PET is one of the most important future end-markets for Carbios. PET is one of the most important raw materials in the plastic economy as it is used for plastic bottles and packaging as the prime applications. The global PET market is forecast to grow by 4-5% pa, to reach a volume of 26Mt by 2020 (source: SRI).
We forecast revenues of €66m from PET technology licensing by 2025. This is based on our assumed market share and royalty rates applied to the global recycling market, as well as adding upfront payments that the company is likely to receive on signing licensing deals. This is by far the single most important revenue contributor as it accounts for 38% of our forecast group revenues in 2025. Our financial forecast remains unchanged, as this step is in line with our expectations.
Exhibit 1: Market and revenue forecast for PET
PET |
2015e |
2016e |
2017e |
2018e |
2019e |
2020e |
2025e |
2030e |
Global market (Mt) |
16 |
17 |
18 |
19 |
20 |
21 |
26 |
34 |
y/y change (%) |
2.5 |
4.5 |
4.5 |
4.5 |
5.0 |
5.0 |
5.0 |
5.0 |
Global recycling market (€m) |
16,400 |
17,224 |
18,179 |
19,187 |
20,388 |
21,664 |
29,349 |
39,759 |
PET Market share (%) |
0 |
0 |
0 |
2 |
2 |
3 |
6 |
8 |
Carbios PET royalty rate (%) |
2.5 |
2.5 |
2.5 |
2.5 |
2.5 |
2.5 |
3.0 |
5.0 |
PET royalty and upfront revenues (€m) |
0.0 |
0.03 |
0.12 |
8.2 |
11.8 |
19.4 |
66.2 |
186.1 |
Source: SRI and Edison Investment Research
The next steps should be conducive to the company developing PET recycling at pilot stage and to adapting the process to other plastics.
Exhibit 2: Financial summary
Year end 31 December |
€'000s |
2013 |
2014 |
2015e |
2016e |
|
|
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
900 |
664 |
508 |
410 |
Cost of Sales |
(3,164) |
(2,912) |
(2,766) |
(2,822) |
||
Gross Profit |
(2,264) |
(2,248) |
(2,258) |
(2,412) |
||
EBITDA |
|
|
(3,077) |
(3,283) |
(3,488) |
(3,895) |
Operating Profit (before amort. and except.) |
|
|
(3,116) |
(3,364) |
(3,577) |
(3,995) |
Intangible Amortisation |
0 |
0 |
0 |
0 |
||
Exceptionals |
9 |
16 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Operating Profit |
(3,107) |
(3,348) |
(3,577) |
(3,995) |
||
Net Interest |
(14) |
48 |
0 |
2 |
||
Profit Before Tax (norm) |
|
|
(3,130) |
(3,316) |
(3,576) |
(3,993) |
Profit Before Tax (FRS 3) |
|
|
(3,121) |
(3,300) |
(3,576) |
(3,993) |
Tax |
961 |
1,090 |
857 |
705 |
||
Profit After Tax (norm) |
(2,169) |
(2,226) |
(2,720) |
(3,288) |
||
Profit After Tax (FRS 3) |
(2,160) |
(2,210) |
(2,720) |
(3,288) |
||
Average Number of Shares Outstanding (m) |
3.8 |
3.8 |
3.8 |
3.8 |
||
EPS - normalised fully diluted (c) |
|
|
(57.8) |
(59.4) |
(72.5) |
(87.7) |
EPS - (IFRS) (€) |
|
|
N/A |
(0.6) |
(0.7) |
(0.9) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
N/A |
N/A |
N/A |
N/A |
||
EBITDA Margin (%) |
N/A |
N/A |
N/A |
N/A |
||
Operating Margin (before GW and except.) (%) |
N/A |
N/A |
N/A |
N/A |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
243 |
1,048 |
1,362 |
1,665 |
Intangible Assets |
72 |
130 |
130 |
130 |
||
Tangible Assets |
14 |
740 |
1,054 |
1,357 |
||
Investments |
157 |
178 |
178 |
178 |
||
Current Assets |
|
|
16,113 |
12,684 |
9,784 |
6,222 |
Stocks |
0 |
20 |
61 |
116 |
||
Debtors |
1,401 |
1,402 |
1,590 |
1,678 |
||
Cash |
14,598 |
11,099 |
7,970 |
4,265 |
||
Other |
114 |
163 |
163 |
163 |
||
Current Liabilities |
|
|
(1,110) |
(196) |
(330) |
(359) |
Creditors |
(1,110) |
(196) |
(330) |
(359) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(680) |
(474) |
(474) |
(474) |
Long term borrowings |
(457) |
(152) |
(152) |
(152) |
||
Other long term liabilities |
(223) |
(322) |
(322) |
(322) |
||
Net Assets |
|
|
14,566 |
13,062 |
10,342 |
7,054 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(1,532) |
(3,128) |
(2,726) |
(3,305) |
Net Interest |
(14) |
48 |
0 |
2 |
||
Tax |
0 |
0 |
0 |
0 |
||
Capex |
(187) |
(867) |
(403) |
(403) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
||
Financing |
13,500 |
546 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
11,767 |
(3,401) |
(3,129) |
(3,705) |
||
Opening net debt/(cash) |
|
|
(2,374) |
(14,141) |
(10,947) |
(7,818) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
0 |
207 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(14,141) |
(10,947) |
(7,818) |
(4,113) |
Source: Carbios, Edison Investment Research
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