TTFNF - PureCycle Stock Soars As Ironton Plant Produces First Pellets

2023-06-21 15:05:11 ET

Summary

• PureCycle Technologies' shares soared after completing the first batch of Ultra-Pure Recycled resin production at its Ohio facility.
• The company is now one step closer to producing recycled polypropylene on a commercial scale, marking its entry into the fast-growing market.
• PureCycle is also working on projects in Belgium, Japan, and South Korea, expanding its global presence.

PureCycle Technologies, Inc. ( PCT ) shares rose 15.22% in pre-market trade on June 21 after the company announced yesterday that it had completed production of the first batch of Ultra-Pure Recycled ((UPR)) resin made from post-industrial recycled material at its Ironton, Ohio facility.

While after the start of regular trading hours, shares are up 17.95% at $9.37 apiece.

This is an important step in the company's strategy to become a well-known player in the industry of converting plastic waste into ultra-pure recycled resins, albeit smaller than more established operators.

For PureCycle Technologies, this is a result that brings the company very close to its next goal, the production of recycled polypropylene. The announcement of the start of production will give the stock another strong boost. In view of this event, this analysis confirms the "Hold" rating given in the previous article .

PureCycle Stock Valuation

The news of the successful production of the first pellets gives the share price a strong boost, which at the time of writing is trading at $9.32, which corresponds to a market capitalization of $1.30 billion.

Shares are trading above the 200-day moving average of $7.26, the 100-day simple moving average of $6.80, and the 50-day simple moving average of $6.97. However, with better growth prospects on the back of positive news out of Ironton, Ohio, they can now trade even higher.

After that rally following the announcement of the first pellet production at Ironton, I think the stock will continue to experience another strong upside, as the next step is now the first commercial production of ultra-pure recycled resin pellets.

Most likely, the next rise in the stock price will be preceded by profit-taking, which could result in losing some of the gains the stock is currently making. A Short Interest Ratio of 24.82% could signal the formation of a price well below current levels over the next few market days, as a reading above 10% indicates increasing bearish sentiment around the stock.

If that is the case, investors are better off sticking with a Hold rating. PureCycle Technologies Inc. is now on the verge of becoming a newcomer in the production of recycled polypropylene. And in preparation for this all-important transformational event, in case no one noticed, the stock price may have already started building a fundamentally positive trend.

The Situation at PureCycle's Flagship Polypropylene Purification Plant in Ironton, Ohio

This facility has a license authorizing PureCycle Technologies, Inc. to convert waste polypropylene into recycled resins and ensure the end product has a high level of purity.

Yesterday, PureCycle demonstrated the effective functionality of its technology on a commercial scale, which manages to remove specific plastic contaminants (such as color, odor, and others) from waste during the recycling process and convert them into a new pure resin.

The next step for PureCycle's flagship polypropylene purification ("PP") plant at Ironton is now to optimize the recycling process of the company's technology under different operating conditions and feedstock. This is required before the plant can start producing recycled PP, as the material to be recycled comes in many shapes and sizes and also contains a wide range of impurities.

PCT's Growth Prospects in a Fast-Growing Global Industry

Once fully operational, the company is expected to produce approximately 107 million pounds of UPR resin at its flagship PureCycle polypropylene purification facility in Ironton, Ohio. This milestone in the company's growth process now positions PureCycle Technologies, Inc. firmly in the fast-growing polypropylene market.

Polypropylene has properties that enable it to be used in a wide variety of processes in several industries. It is used, among other things, in the manufacture of pipes, textile fibers, the manufacture of containers, and chemical and heat-resistant parts of electrical equipment and systems. Personal protective equipment and other disposable medical devices used by workers in the healthcare and food packaging industries all require polypropylene. The industrial product is also frequently used in the automotive sector by manufacturers of electric and hybrid vehicles.

Globally, the polypropylene industry is dominated by large companies such as LyondellBasell Industries N.V. (LYB), China Petroleum & Chemical Corporation (SNPMF), TotalEnergies SE (TTE), and ExxonMobil Chemical. However, thanks to the expected strong growth of the industry in the next few years, the prospects for a smaller manufacturer like PureCycle are still promising.

Demand for polypropylene is distributed geographically as follows: demand from the packaging and automotive industries primarily comes from the Asia-Pacific region, while demand from the food and beverage industries primarily comes from the North American region.

PureCycle Pursues Global Goals

PureCycle is also advancing its first polypropylene recycling plant project to be realized in the Belgian port of Antwerp-Bruges. The European facility will initially process 130 million pounds of PP waste annually and will then expand to a capacity of 520 million pounds. The company is scheduled to start construction work on the European plant in Belgium in the first half of 2014 and start ramping up in the first half of 2026.

PureCycle has a joint venture agreement with Mitsui & Co., Ltd. ( MITSF ) - a Tokyo-based global trading and investment company - to recycle 130 million pounds of PP annually in Japan from 2026/2027. It also collaborates with SK Geo Centric Co., Ltd. - a South Korean petrochemicals manufacturer and distributor - to recycle 130 million pounds of PP annually in Pin on Ulsan, South Korea, by 2025.

PureCycle Technologies is also fully involved in the project to complete a planned multi-line treatment plant in Augusta, Georgia, where site engineering is progressing, and operations are on track to have the first two production lines up and running in less than 1.5 years.

Production of the first pellets at PureCycle's Ironton plant also increases the likelihood of the project's success in Georgia, and the commercial production of recycled PP in Ohio will ensure continuity of financial support beyond June 30, 2023, as the financing agreement with the Economic Development Authority of Augusta provides support until the end of the current month.

The Financial Condition

The company supports the continued development of the Ironton recycled PP manufacturing plant until commercial production and its other growth projects. It has a balance sheet reporting total liquidity of $263.9 million at the end of March 2023, of which 14.6% is cash and short-term investments and 85.4% was in restricted cash.

PureCycle's debts totaled $249.6 million, including accrued interest. Also, the company has secured a $150 million line of credit to be drawn up for general working capital purposes.

The company appears to have the financial resources to fund an additional $26 million to $51 million in spending expected over the remainder of 2023 before the Ironton plant will finally begin commercial production of UPR resin pellets.

Conclusion

Shares in PureCycle Technologies, Inc. made stunning gains in the market after the company announced yesterday that its Ohio plant, which converts waste plastics into ultra-pure recycled resins in pellets, has made its first production.

Although PureCycle Technologies, Inc.'s stock is up significantly, I believe it has the potential for a higher share price than it is at currently as the company announces the start of commercial production in the coming weeks.

Now, the company must bring to market the news that many have been waiting for a while: that PureCycle Technologies, Inc. is a newcomer to the production of recycled polypropylene. I think investors should stick to a Hold rating.

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