2023-05-31 04:03:36 ET
Summary
- Today, we take our first look at a Busted IPO called PureCycle Technologies, Inc.
- The company has very ambitious build-out plans, but the stock has been heavily targeted by short sellers.
- What is ahead for PureCycle Technologies in 2023? An investment analysis follows in the paragraphs below.
"I will not let anyone walk through my mind with their dirty feet. "? Mahatma Gandhi
Today, we put PureCycle Technologies, Inc. ( PCT ) in the spotlight for the first time here on the Busted IPO Forum. This industrial concern has big plans to expand capacity at a rapid clip. Its first major facility is in the process of coming fully online. The stock also seems to have some technical support at around current trading levels. What is the prognosis for PureCycle Technologies going forward? An analysis follows below.
Company Overview:
PureCycle Technologies, Inc. is headquartered approximately three hours north of me in Orlando, Florida. The company produces recycled polypropylene or PP. It basically takes waste PP and turns it into ultra-pure recycled resin via a process that separates color, odor, and other contaminants from plastic waste feedstock to transform it into virgin-like resin.
March Company Presentation
The company came public via a SPAC in the spring of 2021. The stock currently trades at seven bucks a share and sports an approximate market cap of $1.15 billion.
March Company Presentation
The company has ambitious plans. Its flagship state-of-the-art purification facility is located in Ironton, Ohio. The facility was certified mechanically complete in April. Management estimates the new facility will produce between 45 million pounds and 75 million pounds of ultra-pure recycled resin in 2023. PP has myriad uses from food packaging to utilization in the automotive and healthcare industries.
The company also has other earlier stage facilities being built in Augusta, Georgia and Beaumont, Texas. The Augusta plant is scheduled to begin production at some point in the second half of 2024.
It also is developing its first polypropylene recycling plant overseas at the Belgian port of Antwerp-Bruges and has other joint ventures in Japan and South Korea. The plant in Antwerp is currently scheduled to come online in 2026. The plant in South Korea is projected to start production in 2025 and be capable of producing 130 million pounds of PP annually. The plant in Japan will have smaller capacity (59 million pounds) and is currently projected to start production in 2026 or 2027.
March Company Presentation
Analyst Commentary & Balance Sheet:
Since late April, Oppenheimer, Alembic-Global ($16 price target) and Craig-Hallum have reissued Buy ratings on PCT stock. Those are the only analyst ratings I can find on the stock so far in 2023.
The stock is heavily shorted with approximately one in every four shares outstanding currently held short. There has been no insider activity in the equity so far here in 2023. The company ended the first quarter of this year with total liquidity of $263.9 million. This included $38.4 million of cash and cash equivalents and $225.5 million in restricted cash. PureCycle also has approximately $250 million of long-term debt.
Management noted in its first quarter earnings press release that to complete the Ironton project will cost between $26-$51 million. Of which, $25.2 million is included in restricted cash and can be used to fund the remaining investment. The total buildout cost of Ironton at the high end of that range would be $361 million.
Verdict:
The current analyst firm consensus has the company losing 45 cents a share in FY2023 on sales of approximately $46 million. They project sales jumping to nearly $110 million in FY2024 while losses get cut more than half to 18 cents a share.
The company's ambitious build out plans are happening within an environment of much higher interest rates than when the company first went public. The chances of a global recession over the next 12 months seem at least a 50-50 proposition. Given this, it is easy to see why the stock has such a high short position within its shares.
In addition, the company has come under short attacks in its time as a public company. In the Spring of 2021, Hindenburg Research released a new short report on PureCycle Technologies that caused the stock to drop by more than a third. The report alleged that PureCycle executives' previous entities have failed, including bankruptcies and delistings. In addition, it called PureCycle ' the latest zero-revenue, ESG-themed SPAC taken public with a bold story about how it will someday revolutionize the plastics recycling industry '.
Given that level of uncertainty on multiple fronts and how much shareholder value the SPAC boom in 2020 and 2021 has destroyed, I can find no good reason to invest in PCT at this time. If management can effectively bring online capacity as projected, this story might be worth revisiting at a future date.
"One must be a sea, to receive a polluted stream without becoming impure ."? Friedrich Nietzsche
For further details see:
The Prognosis For PureCycle Technologies