2023-11-03 11:45:00 ET
Summary
- Carbios has obtained all necessary permits to begin construction of their PET plant, reducing reflexivity risks and bringing forward cash flows.
- The company is well-funded for the project, with grants from the French government and sufficient cash balances.
- The lack of response in the stock price is surprising, considering the benefits of accelerated timelines and the company's green exposure advantages.
- While all cash burners are speculative right now, Carbios looks pretty interesting and as if the market is ignoring its achievements.
Carbios ( COOSF ) just announced that they have obtained all the necessary permits in order to begin construction of their own PET plant, and that the process has taken almost half the expected time. We think there should have been a bigger response to this news on October 26 as it reduces reflexivity risks and also brings forward cash flows from licensing and from the facility itself. A speculative buy.
H1 and Other News
The big news is that Carbios was able to get the various permits that it needed in France 7 months ahead of schedule . This will allow to start construction of their PET biorecycling facility on the associated property. This was almost in half the expected time. Construction could start immediately.
Just as important, the company is well funded for this initial venture. They have received substantial grants from the French government that cover a couple of years of R&D expense as well as additional funds that are going to help them build the PET biorecycling facility.
These 50 million EUR or so of grants go on top of the current cash and cash equivalent balances of around 80 million EUR. The cash burn annualises to about 40 million EUR per year , so the current cash balances cover the current R&D burn, and the grants will help cover the commissioning of the plant, expected to be completed in 2025.
There really isn't much of a cash burn problem, also because the approval of the permits probably opens the door to start marketing the license of Carbios' PET technology, which has been an important part of their plan to scale capital lightly. The fact that everything's been approved is an additional selling point for the technology if manufacturers want to start commissioning their own factories, and Carbios is high profile enough to have some initial symbolic partnerships with some of the largest clothing manufacturers, in addition to bottling companies.
Bottom Line
The permitting stage tends to be where a lot of the time budget goes to, especially for anything innovative. As such, we expect that the timelines should move up both for the commissioning of the plant as well as for the first licensing deals.
The stock price didn't really respond to this news in late October.
This is strange, as the benefits from any ahead-of-schedule news is twofold. Firstly, it limits further the risks of reflexivity in having to raise capital, essential as Carbios' price has fallen. The second reason is that higher costs of capital make it so that any upfronted cash flows are even more valuable especially for riskier stocks like Carbios.
The lack of reaction in the stock price is a sign that perhaps Carbios is worth considering, especially as its green exposure advantages its capital raising position. While the valuation gap between their ~300 million EUR EV and the several billions the market might be worth in a couple of years might not be ordinarily enough of a discount for a company in this current cost of capital environment, the lessened capital raising risks thanks to accelerated timelines mitigates this, and at any rate the markets could be in the tens of billions in a decade in which case the value gap would be quite large. Moreover, we should have seen some reaction in the stock price.
For further details see:
Carbios: The Proof Of Concept Is Developing Faster Than Thought