Carbios — Update 8 December 2015

Carbios (EU: ALCRB)

Last close As at 22/11/2024

36.98

−2.46 (−6.24%)

Market capitalisation

413m

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Research: Industrials

Carbios — Update 8 December 2015

Carbios

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Industrials

Carbios

Technology milestone achieved

Operational update

Alternative energy

9 December 2015

Price

€12.1

Market cap

€45m

Net cash (€m) at 30 June 2015

9.6

Shares in issue

3.75m

Free float

20%

Code

ALCRB

Primary exchange

Alternext Paris

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.2

7.9

(13.3)

Rel (local)

8.2

2.7

(20.1)

52-week high/low

€13.9

€11.0

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

FY15 results

March 2016

Analyst

Roger Johnston

+44 (0)20 3077 5722

Carbios is a research client of Edison Investment Research Limited

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*
(£m)

EPS*
(c)

DPS
(c)

P/E
(x)

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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United Kingdom

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