Roth Capital Partners analyst Gerry Sweeney is still bullish on cleantech company Loop Industries (Loop Industries Stock Quote, Charts, News, Analysts, Financials NASDAQ:LOOP), saying in a company note on Thursday that Loop’s tested technology and attractive joint venture business make for a winning combination.
Loop is a Montreal-based company with a patented and proprietary tech to depolymerize no- and low-value waste PET plastic and polyester fibre (e.g., plastic bottles, packaging, carpet, textiles) to break to it down to monomers which are then used to make virgin-quality PET plastic resin and polyester fibre which is suitable for food-grade packaging and CPG companies.
Loop recently finalized its joint venture (JV) with SK Geocentric, announced on May 2, 2023, to commercialize Loop’s technology through the Asian market. The first facility is planned for Ulsan, South Korea, and is expected to break ground in 2023 and be completed by the end of 2025. The JV partners are also planning three more facilities in Asia by 2030.
Sweeney said Loop’s technology is tried and tested, after the company’s Terrebonne demonstration facility has been operating for over two and a half years. That time has seen Loop produce Evian bottles co-branded with the Loop logo as well as Garnier having announced recently a specialty run of 20,000 bottles using recycled PET from Loop.
“We believe LOOP has de-risked its PET recycling process through its demonstration facility, which has produced pellets for testing and small-scale manufacturing runs. Combining this with a well-financed and experienced chemical producer, LOOP is likely the best positioned it has been to commercialize its process. While challenges remain around funding, we believe LOOP has several angles to pursue,” said Sweeney in his report.
Sweeney said the SKG JV has attractive economics, where the Ulsan facility is expected to cost $400 million and generate $200 million in revenue. The analyst estimates each facility will be able to generate $90 million in EBITDA, with $44 million going to Loop and $37.5 million in net income, with $18 million going to Loop.
Sweeney thinks funding for the JV is likely the last near-term hurdle.
“From a financing perspective, we assume 60 per cent debt to equity. This implies a $78 million required contribution from LOOP,” he said. “LOOP targets considerably lower cash burn now that engineering and other costs are complete, however, even with reduced spending, capital for SKG JV facility would need to come from outside sources. In this regard, there are several potential buckets including strategic investment by existing or new investors, customers, and finally open market equity.”
With the update, Sweeney reiterated a “Buy” rating on Loop and $6.00 target price, which at press time represented a one-year return of 99 per cent.