Roth Capital Partners has lowered its expectations on Canadian cleantech name Loop Industries (Loop Industries Stock Quote, Charts, News, Analysts, Financials NASDAQ:LOOP). In a Thursday company note to clients, analyst Gerry Sweeney kept a “Buy” rating on the stock while dropping his 12-month target from $20.00 to $6.00 after assessing the company’s status regarding a recent pivot announcement.
Loop, which has patented tech to depolymerize no- and low-value waste PET plastic and polyester fibre to create virgin-quality, Loop-branded PET plastic resin and fibre suitable for food-grade packaging, announced last month a strategy pivot including the sale of its Becancour land, cost cutting, the departure of its CFO Drew Hickey and an overall focus of on its relationship with SK Geocentric (SKGC) for planned projects in Asia and Europe.
“These joint venture projects have a lower requirement for Loop equity investment and higher return on capital and leverage SKGC’s engineering and operational infrastructure. In addition, the joint venture projects will provide Loop with an annual technology licensing fee,” the company said in a December 22 press release.
“SKGC is committed to commercializing Loop’s technology as the underpinning of its sustainable plastics strategy. Loop is working collaboratively with SKGC to put in place the financing plan for the rollout of large-scale manufacturing in Asia and Europe, including the first Asian manufacturing facility in Ulsan, South Korea, which is planned to break ground in 2023,” Loop said.
Commenting on the moves, Sweeney said while the pivot should provide multiple years of cash, questions remain over the company’s total plant build-out as well as on equity splits in ownership and potential funding.
Sweeney said he believes Loop’s technology works as demonstrated at its Terrebonne facility and through the investment from SKGC, but he said he’s disappointed in how long it took management and the board to decide on the pivot.
“While there remains opportunity for the plant to be built in the future, it was one of the centerpieces of LOOP’s strategy and a key messaging point for the past two years. The SKGC relationship remains a key opportunity, however, LOOP is not in the driver’s seat and economics of how the relationship will develop remain unclear. There will be a royalty aspect, but not only does the equity portion remain uncertain, the funding of the equity is not clear as well. We would like to see a more definitive plan and timeline emerge for SKGC relationship,” Sweeney wrote.
At press time, Sweeney’s new $6.00 target represented a projected one-year return of 128 per cent.