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This article first appeared on Trend Investing on 19 August 2019; therefore all data is as of this date.
The biodegradable plastic trend is gaining strength as governments and the public choose to avoid plastic that damages our environment. We throw away ~500 billion plastic bags per year, and plastic is a very long term environmental pollutant, hence it makes perfect sense to switch to bioplastics.
How plastics are damaging our oceans
Biodegradable plastic (also called ‘bioplastic’) refers to plastic made from plant or other biological material instead of petroleum that will break down naturally over time. The idea is not new, but interest in bioplastics is now rising rapidly. Bags and packaging are the largest end-use products for biodegradable plastics (see chart below). Some others are drinking cups, straws, takeaway food trays, containers, and boxes.
Projected EU 2020 market share of biodegradable plastics
Global corporations are starting to change their habits as their customers demand them to be more environmentally friendly. Just one example is McDonalds (MCD). By 2025, McDonalds state that “100% of McDonald’s guest packaging will come from renewable, recycled or certified sources.”
Biodegradable plastics outlook
According to a PR Newswire, a report by Markets and Markets, the Biodegradable Plastics Market is projected to grow from USD 3.02 billion in 2018 to USD 6.12 billion by 2023, at a CAGR of 15.1%.
Global market value of biodegradable plastics 2018 and 2023 – CAGR of 15.1%
Some leading biodegradable plastic companies to consider
- Avantium [AMS: AVTX] [GR:27V] – Price = Euro 2.63
Avantium specializes in the development and marketing of renewable chemical solutions. The group ensures the development of sustainable processes and products using biogenic materials, including the YXY technology, which makes it possible to produce Polyethylene Furanoate [PEF], an entirely new and high quality plastic made from industrial sugars. Additionally,
Avantium offers advanced research and development services for chemicals, refining and energy industries.
Market cap is Euro 65m. Revenue is forecast to grow 12% from Euro 11.3m in 2018 to Euro 12.7m in 2019. Earnings are currently negative. Analyst’s consensus target price is Euro 1.75.
- BASF SE [ETR: BAS] (OTCQX:BASFY) – Price = Euro 57.50
BASF SE is a German chemical company and the largest chemical producer in the world. Given 2018 revenues were ~Euro 62b, the biodegradable plastics sector (US$6b potential revenue by 2023) would not move the needle enough for BASF, despite the fact they will likely be a significant player.
Market cap is Euro 52b, and 2020 PE is 14.5.
- Biome Technologies [LON:BIOM] – Price = 350 GBp
The Group comprises two divisions, Biome Bioplastics Limited and Stanelco Radio Frequency Technologies Limited.
The Company state:
Biome Bioplastics is a leading developer of highly-functional, naturally-based plastics. The Company’s mission is to produce bioplastics that challenge the dominance of oil-based polymers, and ultimately replace them completely.
CEO Paul Mines recently stated:
Opportunities within the Bioplastics division are increasing with substantial revenue potential in the medium term.
Total group revenues for the first half of the year were £3.6m (H1 2018: £4.4m) with the Bioplastics division reporting a 53% increase in revenues over the same period in the prior year. The Company expects to report a ‘modest loss’ for H1 2019.
Market cap is 8.3m pounds. Current PE is 70. I could not find any analyst price targets.
- Eco six-pack ring (“E6PR”) (private)
E6PR is a private Mexican startup company that makes the eco six-pack ring used by brewers such as Corona. It’s made of plants and not plastic.
- Good Natured Products Inc. (TSXV:GDNP) (OTC:SLGBF) – Price = CAD 0.14
Good Natured Products engages in the provision of plant-based products and packaging business. The Company operates in North America. Good Natured products describe their company:
With over 100 plant-based food packaging designs, 10 grades of bioplastic rollstock sheets, 30 home & business organizational products and a world class team of scientists, business builders and retailers, good natured® is producing and distributing one of North America’s widest assortments of consumer products and packaging made from the highest possible percentage of renewable, plant-based materials and no BPAs, phthalates or other chemicals of concern.
Good Natured Products has achieved the following milestones:
Growing base of 120+ customers across 20 states & provinces. National, regional and small business retailers, food producers & packaging distributors.
Wide assortment of over 135+ plant-based products & packaging SKUs.
45+% YOY revenue growth in F2018. Organic, acquisitions and increased revenue per customer.
Highly scalable, vertically integrated supply chain provides growth capacity on variable basis and gross margins of 30%+.
Insiders & management own 45% of outstanding shares.
Revenues have been rising fast. For example, revenues for Q1 FY19 increased 84% to $2,056,014 compared to $1,118,487 for the three months ended March 31, 2018. Mostly due to SG&A expenses of $1,054,579, the Company had a net loss of $720,361 for Q1, 2109. At this rate of revenue growth if expenses can be controlled the Company will soon be profitable.
Market cap is CAD 14m. I could not find any analysts target prices. Looks promising.
- Mitsubishi Chemical Holdings Corp. [JP:4188] (OTCPK:MTLHF) – Price = JPY 730, USD 6.71
Mitsubishi Chemicals operates through the following segments: Electronics applications, designed materials, health care, chemicals, polymers and others. A key biodegradable plastics player; however biodegradable plastics revenue would not move the needle for this diversified giant.
Market cap is JPY 1.1 T. 2020 PE is 6.7. Analyst’s consensus target price is JPY 825. Well valued, but more a generals chemicals play (including petrochemicals).
- NatureWorks (private)
NatureWorks is jointly owned by Thailand’s largest chemical producer, PTT Global Chemical [BKK: PTTGC] (OTCPK:PCHUY), and Cargill (private), which provides food, agriculture, financial and industrial products and services to the world.
NatureWorks develops biopolymers for a sustainable source of plastics. The Company uses carbohydrates from plants to produce products such as textiles, durable goods, films, packaging, disposable flatware, and adhesives and other chemicals. NatureWorks operates in North America, Europe, and Asia.
- Corbion NV [AMS: CRBN] (OTCPK:CSNVF) – Price = Euro 25.34, USD 32.29
Corbion is a s a Dutch food and biochemicals company headquartered in Amsterdam. The Company produces bio-ingredient based foods, chemicals derived from organic acids, and lactic acid based solutions for the food, chemical and pharmaceutical industries. Only a relatively small proportion of sales come from bioplastics (25% in 2017), with the majority coming from bakery sales (72.6% in 2017). Corbion has bioplastic JV’s with Total and BASF. You can read more here.
Corbion reported H1 2019 sales of € 471.9 million, an increase of 7.4% compared to H1 2018.
Market cap is Euro 1.5b. 2020 PE is 19.0. Analyst’s consensus price target is Euro 28.20.
Risks
The world may continue with conventional plastic despite the fact it does not degrade and is damaging our environment.
Technology change – Newer types of bioplastics may replace the current ones. Recycling of plastics is a form of competition to bioplastics.
Management and currency risks.
The usual stock market risks (liquidity, dilution, sentiment etc).
Conclusion
I think there is not much doubt that the world will move towards biodegradable plastics, it is just a question of how quickly. Ideally the global chains and supermarkets will lead the way.
Risks lie more in the area of which biodegradable plastic and what companies will be the big winners. There is also some threat from conventional plastics being recycled.
For now my preferred companies in the sector are the purer plays that are growing well. Two smaller market cap that appeal are Biome Technologies and Good Natured Products Inc. I will continue to keep an eye on the sector, as it looks sure to take off.
As usual I am happy to hear of any promising companies I may have missed, and all comments are welcome.
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Disclosure: I am/we are long Good Natured Products Inc [CVE: GDNP]. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The information in this article is general in nature and should not be relied upon as personal financial advice.
Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.
REFS
Published on seekingalpha.com and written by Matt Bohlsen
A Look At The Biodegradable Plastics Sector And Some Leading Companies