LYB - PureCycle: Upside Potential Increases As Ironton Approaches Production

2023-03-17 15:05:40 ET

Summary

• PureCycle Technologies shares rose after the fourth-quarter 2022 report, rebounding sharply from last week's 52-week low.
• Although smaller than more established operators, PureCycle aspires to become a well-known player in the industry of converting waste plastics into ultra-pure recycled resins.
• The polypropylene market is growing rapidly and PureCycle Technologies is going to start its first production line in Ohio.
• PCT stock seems poised to see more upside, and investors should hold shares.

What Happened To PureCycle Technologies Stock Following Corporate Update And Financial Results For 4th Quarter 2022?

PureCycle Technologies, Inc. ( PCT ), an Orlando, Fla.-based company seeking to implement a technology to produce recycled polypropylene, released company updates and financial results for the fourth quarter ended December 30, 2022, after the market close on Wednesday, March 15, 2022.

Following the announcement, PureCycle Technologies, Inc. shares rose 39.4% from $4.77 at the close on March 15 to $6.65 at the close on March 16.

As there is another positive event that could potentially trigger another rise in the stock price in the near term, shareholders may wish to hold shares of PCT stock in their portfolios.

Let's See What's In The Q4 2022 Update That Sent PCT Stock Price Skyrocketing

PureCycle's flagship purification facility in Ironton, Ohio, should now be close to the final installation of the remaining processes, which Dustin Olson, the company's CEO, estimates will happen in a matter of weeks.

PureCycle engineers expect the mechanical delivery of the purification system to be completed no later than the first half of April 2023.

PureCycle plans to ramp up the production of ultra-pure recycled resins in pellets by the end of April, which means producing salable pellets is no longer just a project. The start of this phase should give the stock price another strong move higher after its probable announcement.

Secured by license, PureCycle Technologies, Inc. is authorized to convert polypropylene plastic waste into recycled resins characterized by a high degree of purity.

Specifically, the recycling process is the technology that PureCycle can implement to remove specific plastic contaminants (such as color, odor, and others) from the waste until the waste is converted into a new pure resin.

Polypropylene is an industrial good with specific properties such as tear strength combined with good chemical, heat, and resistance. It is a very suitable input for the production of a wide range of applications in different industries.

The healthcare and food packaging industry requires polypropylene for personal protective equipment and other disposable medical devices or to ensure food safety through ad hoc packaging solutions. The industrial product is also widely used in the automotive sector by manufacturers of electric and hybrid vehicles.

Although PureCycle might be a smaller player in a universe where big players like LyondellBasell Industries N.V. ( LYB ) seek to dominate the competition, the anticipated strong growth in industry use of this asset over the next few years will result in market opportunities that PureCycle may also address.

While the Asia-Pacific region dominates the polypropylene ((PP)) market globally, focusing primarily on demand from the packaging and automotive industries, the North American market is instead thriving due to the rapidly growing demand for polypropylene from the food and beverage industries.

Other Relevant Business Developments

But that is not all. Let's stay on the topic of the profitable North American markets. PureCycle Technologies announced a partnership agreement with Formerra yesterday, March 16.

Who is Formerra? As a leading distributor of engineering materials, Formerra will reach new end markets in North America as a major supplier of PureCycle's high-pure recycled polypropylene resin.

PureCycle Continues To Make Significant Strides In Its Growth Strategy

In addition, PureCycle continued to make significant strides in its growth strategy. The company announced its first polypropylene recycling plant at the Belgian port of Antwerp-Bruges while continuing to develop a joint venture agreement with Mitsui & Co., Ltd. ( MITSF ) and develop plans with SK Geo Centric Co., Ltd.

PureCycle's first European polypropylene recycling plant will initially have a nominal annual capacity of 130 million pounds, which has the potential to be expanded to a nominal capacity of 520 million pounds. Construction activities in Belgium are scheduled to start in the first half of 2024, while ramp-up of the European polypropylene plant is planned for the first half of 2026.

Mitsui & Co., Ltd. is a global trading and investment company based in Tokyo, while SK Geo Centric Co., Ltd. is a South Korean petrochemicals manufacturer and distributor.

PureCycle is collaborating with Mitsui to develop and operate a polypropylene recycling plant in Japan and with SK Geo Centric to construct a recycling plant in Pin on Ulsan, South Korea.

The South Korean plant is expected to produce 130 million pounds of polypropylene annually, with production expected to ramp up before the end of 2025.

With an expected capacity of 59,000 tons (or about 130 million pounds), the Japanese plant is scheduled to come on stream in 2026/2027.

PureCycle Technologies continues to advance the project to realize its planned multi-line purification facility in Augusta, Georgia, where the first two production lines are expected to be operational in less than 1.5 years.

The progress made in Ohio should give investors great confidence in the success of the growth strategy being implemented in Georgia. The company will be better equipped to provide the financial support that the Phase 1 Augusta project requires to move into a production phase.

With regard to financing the Augusta project, the company can benefit from an extended financing period through June 30, 2023, based on an agreement with the Augusta Economic Development Authority.

PureCycle's Financial Condition

At the end of 2022, PureCycle's balance sheet reported total liquidity of $326.1 million, of which 50% was cash and short-term investments and 50% was 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 for general working capital purposes.

The company appears to have more than enough financial resources to fund an additional $39 million to $45 million in expenditures expected in the first quarter of 2023 before the Ironton facility will finally start producing high-pure recycled resin pellets.

PCT Stock Valuation

PureCycle Technologies' shares are trading at $6.51 per piece at the time of this writing, giving it a market cap of $1.09 billion.

Despite the recent surge on very positive news about Ironton, the stock price is still trading well below the 200-, 100- and also 50-day simple moving averages and below the median of $7.695 of the 52-week range of $4.44 to $10.95.

As such, shares appear to have plenty of room to continue higher, and another potential rally could follow when the company announces commercial production of ultra-pure recycled resin pellets from its Ironton, Ohio, facility.

Someone would argue that the expected event with its upside potential is already priced into the stock price, reducing the scope for an impressive gain. That's possible but little probable as the stock price is recovering from the bottom formed after falling to a 52-week low last week.

The 14-day relative strength index of 53.06, which suggests that shares are not yet overbought despite the strong rally of the past 2 days, also shows that there is more than enough room for the stock price to rise further from current levels if it wants to.

As such, investors may wish to continue owning shares of PureCycle Technologies.

It may not make sense to take profits now as the company's operations appear poised to deliver another piece of positive news, the start of salable production of ultra-pure recycled resin pellets in Ironton above all.

There is still a risk that PureCycle may have to postpone the start-up of the Ironton facility again, as has been the case for the past four months as the company faced several challenges leading to delays beyond its direct control.

However, that risk appears to have been greatly reduced, judging by the words of PureCycle's CEO, who reassured shareholders that the company should finally be on the road to commercial pellet production in Ohio.

Perhaps the most feared headwind could come from continued rate hikes to further combat high inflation, as ever-increasing cash costs are not a good thing for a company that needs to raise funds to support its growth.

But even this headwind has its detractors, which consist of the following factors. A financial position for PureCycle Technologies, Inc., which appears to be able to rely on its existing forces to reach the goal in Ohio. The positive impact on U.S.-listed stocks, including PureCycle, of the ongoing rumors of a possible suspension or easing of rate hike policy to prevent the failures of Silicon Valley Bank and Signature Bank ( SBNY ) from facilitating a domino effect in the financial system.

Conclusion

PureCycle Technologies, Inc. made a big jump in the stock market after its corporate update and financial results for the fourth quarter of 2022, released two days ago, reported that its Ohio facility for converting waste plastics into ultra-pure recycled resins in pellets overcame its last-minute delay.

The PureCycle Technologies, Inc. shares have rebounded but still hold significant potential for higher gains as more positive news for this stock could emerge in the near term.

Investors may want to Hold PureCycle Technologies, Inc. stock.

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