Loop Industries is a Buy, says Paradigm

Look for strong earnings growth up ahead for Canadian cleantech company Loop Industries (Loop Industries Stock Quote, Charts, News, Analysts, Financials NASDAQ:LOOP), according to Paradigm Capital analyst J. Marvin Wolff, who delivered an update to clients on the company on Tuesday. Wolff reiterated a “Buy” rating and 12-month target of $5.10 per share, which at press time implied a return of 65 per cent.

Montreal-based Loop Industries, which has a patented technology to produce PET plastic and polyester fibre from 100 per cent recycled content, announced on Tuesday that SK Geo Centric, which acquired a ten per cent stake in Loop in 2021, has completed its final technical due diligence of Loop’s PET tech, finding that all parameters met or exceeded design expectations and that the generated monomers (dimethyl terephthalate (DMT) and monoethyleneglycol (MEG) were of virgin quality.

Loop called it a validation of its technology and a critical milestone in the move to commercialize its Infinite Loop manufacturing plant design.

“Due to the large population centres and being the main hub for the polyester fibre supply chain for textiles, the Asian market represents a tremendous opportunity for growth.” said Loop Founder and CEO Daniel Solomita in a press release. “We are delighted to continue working closely with SKGC and to commercialize our technology in the Asian market.”

Loop and SKGC are planning a number of large-scale manufacturing facilities, with the first facility to break ground in Ulsan, South Korea, in 2023.

Wolff said Loop’s universal plant design means it can be applied to any site with minor infrastructure adjustments, which will significantly reduce cash burn. On the next step, the signing of a definitive joint venture with SKGC for the Ulsan facility, Wolff said Loop’s initial contribution should be about $16 to $24 million, representing about 20 to 30 per cent of Loop’s projected total. (All figures in US dollars.)

“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+ internal rates of return 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,” he said.

Wolff is modelling three joint venture plants to come online in fiscal 2026, 2027 and 2028, respectively.

“With the strong support of SKGC we believe Loop will be fundable, thus we maintain our Buy recommendation,” Wolff wrote.