Loop Industries keeps Buy rating with Paradigm

Paradigm Capital Markets analyst J. Marvin Wolff is still sticking with Loop Industries (Loop Industries Stock Quote, Chart, News NASDAQ:LOOP), maintaining a “Buy” rating and target price of $21/share for a potential return of 260 per cent in an update to clients on May 30.

Loop Industries focuses on depolymerizing waste polyethylene terephthalate (PET) plastics and polyester fibres into base building blocks, turning polymers into virgin-quality PET plastic for use in food-grade packaging like plastic water bottles and carbonated soft drinks and containers for food and other consumer products.

Wolff’s updated analysis came after Loop Industries produced its fourth quarter financial results for the 2022 fiscal year along with a number of business updates.

With Loop Industries still being a pre-revenue company, the financials were headlined by a loss of $0.30/share to wrap up its 2022 fiscal year with a $0.99/share loss, with both figures winding up in line with Wolff’s loss estimates of $0.21/share in the quarter, and $0.86/share for the year. According to Wolff, the variance from the expectation was R&D which was $1 million higher and a contingency loss for legal settlement of $2.5 million plus a $1.1 million charge for a loss from an equity investment. (All figures in US dollars.)

The company also offered progress reports on a number of ongoing projects, with Wolff also noting that the prices of recycled PET are going up.

“Some of the increase is owing to higher oil prices but a significant amount is because of the high demand for recycled PET needed to meet the recycling regulations, especially in Europe for 2025,” Wolff said.

Loop has been working to meet that higher PET demand, having recently made modifications to its plant in Terrebonne, Que., which can now produce commercial launch quantities of Loop recycled virgin quality PET for its customers, namely the evian water bottle launch in South Korea and the On Ag sport shoe launch.

Another prominent plant in Loop’s operation is the Infinite Loop structure in Becancour, Que., which Wolff notes to be the commercialization plant template that sets the standard for all other global plants. With initial site planning now complete, Loop has moved on to detailed engineering for the plant, with construction expected to start in the final quarter of 2022 and a primary partner already secured in Danone, which has signed a five-year contract with Loop. 

Regarding financing, Wolff forecasts the capital cost for the plant to come in around $400 million; based on a 75-25 ratio, Wolff is expecting the company to be looking to raise $100 million in some form of equity.

The Infinite Loop planning is also taking root in other parts of the world, with its European site now picked out in Normandy, France, in a joint venture with Suez Group with ground expected to be broken in 2023, while its joint venture with SK geo centric is expected to lead to four plants being constructed in Asia by 2030.

“With the continuing progress made during the fourth quarter fiscal 2022 and first quarter of fiscal 2023, Loop is positioned better than ever to proceed with the commercialization of our breakthrough technology on a global scale with the support of our strategic partners,” said Daniel Solomita, Founder and CEO of Loop Industries in the company’s May 26 press release. “I would like to thank all of the Loop team for their commitment in successfully implementing our vision for the company. We are now focused on evaluating and implementing our financing plans to proceed with construction of our planned manufacturing facilities.”

Wolff’s financial forecasts include zero revenue in 2022, $1.7 million in 2023, a 2024 forecast of $4.5 million and a $24.5 million call for 2025. On EBITDA, Wolff is expecting a loss of $44.1 million in 2022, a loss of $41.1 million in 2023, a loss of $38.2 million in 2023 and a loss of $26.0 in 2025.

For investors, Wolff forecasts a $0.99/share loss in 2022, a $0.68/share EPS loss in both 2023 and 2024 and a 2025 estimated loss of $0.54/share.

Loop Industries has been a losing proposition for investors in 2022 with about a 54 per cent loss, consistently dropping after starting the year trading at $12.78/share, and dropping as low as $5.02/share on May 12.