Loop Industries is a double from here, says Paradigm

Loop Industries (Loop Industries Stock Quote, Charts, News, Analysts, Financials NASDAQ:LOOP) has taken a beating over the past year and a bit, with the stock down about 85 per cent since early November, 2021. But there’s still a lot of promise in the cleantech company, according to Paradigm Capital analyst J. Marvin Wolff, who delivered a report to clients on LOOP on Tuesday where he maintained a “Buy” rating on the stock while lowering his target price from $12.50 to $5.10 per share.

Montreal-headquartered Loop Industries, which has patented technology to make PET plastic and polyester fibre made from 100 per cent recycled content, announced its fiscal third quarter 2023 financials on January 12, registering $25K in revenue and an EPS loss of $0.02 per share. (All figures in US dollars.)

The company provided a corporate update on its joint ventures along with announcing an agreement to sell its remaining property at its Bécancour, Quebec, site for $18.5 million, with the deal expected to close on February 24, 2023. 

Loop said with the sale of Bécancour it can now focus on its commercialization strategy and its planned projects with SK Geo Centric (SKGC), with whom it will be building out three plants: one in South Korea, one in France and a third to be announced.

“These joint venture projects have a lower requirement for Loop equity investment and higher return on capital, provide Loop with an annual technology licensing fee and leverage SKGC’s expertise in plant operations and maintenance,” Loop said in a press release.

Looking at the quarterly news, Wolff said with the property sale Loop now has about $33 million pro forma on its balance sheet, which should cover expected cash burn for about three years. Wolff said the total gain on the Bécancour property was about fivefold. 

With the property out of the picture, Wolff said his model has changed; he is expecting the three joint-venture plants to roll out in fiscal 2026, 27 and 28, respectively. For his new target price, Wolff said he is using a 2028 EBITDA forecast attributable to Loop of $112 million, with debt of $366 million and 97 million shares outstanding (there are 47 million currently). Using a 10x multiple of this EV/EBITDA estimate and a ten per cent discount rate, he arrived at his new $5.10 target, which at press time represented a projected one-year return of 100 per cent.

“Loop’s unique 100 per cent-recycled product is expected to command a premium price, generating very strong economics, thus achieving a 45–50 per cent EBITDA margin and 20 per cent+ IRRs at each of its production facilities. With an estimated EBITDA generation of $100 million per full-scale plant (assuming 100 per cent ownership), and a goal of six plants by 2030, we see meaningful EBITDA growth over the next decade,” Wolff said.