Leaf Resources’ (LER) Glycell technology dramatically cuts the cost of producing cellulosic sugar from biomass. It also produces ‘clean’ sugars, with low degradation, for higher-value bio-based chemicals and plastics manufacture. Its quality coproducts open up high-value global growth opportunities. The shares are trading well below our valuation range.
LER’s Glycell process is a disruptive technology that dramatically reduces the costs of bio-based chemicals, plastics and fuel produced from biomass. The process has the potential to change the face of global renewable production. The cost advantage is partly driven by higher process yields, the simplicity of the process and additional revenue from coproducts. The quality of its coproducts offers another dimension, unlocking high-value opportunities in new growth areas such as the renewable aromatic resource for the chemical industry offered by lignin.
LER’s attention is focused on licensing its technology, joint ventures and collaborations. A target is renewable chemicals, where the large chemical companies have stated objectives to achieve 25% of their sales from renewable chemicals by 2020. Another target is the pulp and paper industry, which is strategically keen to embrace bio-based markets as it is a natural agglomerator of biomass. Glycell provides opportunities for revenue diversification, in part using existing pulp and paper plant and infrastructure. There are also opportunities utilising ‘advantaged’ biomass, which is essentially a waste product. As biomass is the largest cost in producing bio-based products, such opportunities can be very profitable. LER is also seeking licensing opportunities such as reequipping first generation ethanol sites, retrofitting existing second generation biofuel and biomaterials assets or new infrastructure.
The Glycell process has enormous valuation upside because of its potential global application. Our valuations are based on access fees and royalties linked to gross profit. Significant extra value could be created through the potential for direct ownership of assets in joint ventures. In the mid-range of our royalty assumptions, we calculate a valuation of A$1.45 per share. Incorporating a lignin coproduct, the valuation rises to $4.95/share. If a glycerol coproduct is produced, the valuation is A$6.29. This demonstrates the upside of coproducts, some of which will provide feedstocks for the expansion of bio-based products into new growth areas.