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We have dropped our coverage of Carbios owing to internal reorganisation. Our rating, target price and estimates are therefore no longer valid.
Carbios Carbios SA
What happened? Losses (-EUR33m) widened as compared to the previous year with Carbios notably stepping up its commercial teams. The cash position at the end of the year was EUR109m of which EUR19m of financial assets partly pledged with some suppliers. The company is confident to have enough cash in hand to run the business for more than 12 months. The cost cutting plan aims at suppressing up to 40% of existing positions. The company expects to reduce its cash burn by 40% with full impact from FY26 onwards. The plant whose construction has been postponed by 6 to 9 months is still expected to cost what was initially budgeted. Carbios is also in advanced discussion to conclude off-take agreements. The company is still in discussion to obtain additional non-dilutive financing. The French government should support the project through a debt guarantee of EUR86m (BPI Assurance Exprt). Negotiations with banks are ongoing for the unsecured part with due diligence taking place. At the same time negotiations with potential clients having signed LOI''s are still going on. Carbios therefore expects to sign several contracts by end June 2025. Carbiolice is expected to be close to breakeven in a reasonable time frame. BNPP Exane View: Carbios is progressing on all fronts with news flow expected to intensify in coming months. Once the financing fully is secured, Carbios should be in a better position to negotiate a potential equity investment from Indorama in the factory (Carbios 54 subsidiary).
Operating losses increasing faster than expected H1 operating losses were EUR20m vs -EUR15m expected. RandD expenses were up 43% with headcount expanding. Sales and Marketing expenses were up 87% with Carbios now in a position to address all key geographies. Finally, GandA was up 46% due the rollout of a new enterprise resource planning (ERP) software. Net income was -EUR18m and the gross cash position at the end of H1 was EUR144m, down from EUR192m the year before. Longlaville plant construction going according to plan, but funding not yet fully secured The plant should be commissioned by end-FY25 and production should be ramping up from FY26 onwards. However, the company is still in negotiations with Indorama for the funding of the plant (EUR110m equity/debt injection in Carbios 54). Carbios is also considering other financing alternatives in case of failure of current negotiations with Indorama. Progress on the commercial front but LOIs most likely to convert to firm orders in FY24 Announced LOIs are already amounting to potential capacity in excess of 150kt (or 3x the Longlaville plant). However, non-technical due diligence (e.g. plants location, funding, sourcing of feedstock) from Carbios clients are taking time. We therefore expect that those LOIs will be converted into orders from FY25 onwards. Cutting estimates, revising valuation range downward We have revised downward our expectations for Carbiolice (PLA) and have shifted our expectations for licensing deals and royalty streams by a year. Our FY26e EBITDA is therefore revised from EUR75m to EUR7m. The company should now be FCF positive from FY27 onwards. Our valuation range - based on DCF, production output and royalties - is revised accordingly from EUR42-EUR80 to EUR18-EUR46.
LOI signed with Zhink Group Carbios has just announced the signature of a Letter of Intent in view of a first licensing agreement for a 50K ton plant in China. We believe it is a major achievement and the firm order could be signed fairly quickly. Zhink Group and China Zhink Group is a major Chinese PET producer with an annual production of 3 million tons of PET per annum. Zhink Group is one of China''s TOP 500 private companies and specializes in PET and textile production. As for China, the country is today the largest PET producer, accounting for 61% of the world''s production. China is also gearing up on recycling technologies. Indeed, in 2021, 58% of R-PET production was consumed in Asia (with 38% in China). Multiple positive implications We believe this potential deal further validates Carbios'' enzymatic depolymerization technology. A 50K ton pa plant with this client could be just the beginning. There could be further scale up opportunities down the road with this client. Finally, China is likely to be a strategic market going forward for Carbios. As such, signing with Zhink could encourage others to follow the same path. Valuation range reaffirmed. Lack of newsflow, adverse market conditions for concept stock and the snap election shock have not been supportive. However, we believe Carbios is on track to deliver as initially expected, with this deal supporting FY numbers (a 50kt licensing contract should provide EUR7.5m or revenues, by our estimates). Our valuation range is reaffirmed (EUR42-EUR80).
Capital raise of cEUR141m (gross amount) On July 13, Carbios announced the success of its capital increase. The final gross amount raised was cEUR141m. It resulted in the issue of 5.5m shares. 85% of the proceeds to fund the construction of a factory 85% of the net proceeds will be devoted to finance the construction of its first factory. It is expected to be commissioned in the course of 2025 with a nominal capacity of 50kT. The total cost of the factory is expected to be cEUR230m. The financing of this first plant will also be supported by Indorama Ventures (around EUR110m), subsidies from the French government (EUR30m) and from Grand-Est Region (EUR12.5m). 15% of the proceeds to boost RandD projects The rest of the net proceeds will finance expenses related to the PET RandD activities. They will also be used to set up research on other polymers (PA, PP and PE at a later stage) and/or further applications. Incorporating the capital increase into our forecasts We have adjusted our estimates to reflect the capital increase. We estimate net proceeds at EUR138m. Our net loss forecast for FY23e is reduced from -EUR35m to -EUR32m and for FY24e from -EUR24m to -EUR22m. Valuation range adjusted to EUR42 to EUR81 (vs EUR46.5 to EUR100 before) We update our valuation range following the capital increase and the issue of 5.5m shares. In the months to come we expect positive newsflow on: 1) further progress on the factory, 2) the set-up of new brand consortiums and 2) potential announcement of license contract agreements.
Carbios is a cleantech company, focused on developing enzymatic bioprocesses for the recycling of plastic wastes and their biodegradation. Its technological lead and first-class ecosystem should encourage wide adoption as key milestones are crossed. Last week''s strategic update unveiled a more robust business model than initially expected. Our valuation range is lifted accordingly. Differentiated player in a highly competitive environment... Carbios'' technology overcomes mechanical recycling limits. Compared to other chemical recycling technologies, Carbios'' strengths are multiple: cleaner, faster, safer and easier. Fully patented, praised by the scientific community and endorsed by consortiums of first-class CPG companies that could well expand further, wide adoption should follow as key milestones are further reached. ... should allow company to charge premium royalties In addition to royalties on enzymes, revenues should now also encompass premium royalties. As such, the royalty contribution should increase from we believe cEUR60 per tonne to ''at least EUR250 per tonne,'' as guided by the company. This would offer a material boost to profitability. We therefore revise upward our estimates from 2026e, also as we include the contribution from the factory jointly owned with Indorama set to be commissioned by 2025e. Our forecasts for 2023-2025e are lowered on higher RandD and SGandA. We expect Carbios to be EBITDA positive by 2026e. Valuation range lifted to EUR51 to EUR110 (vs EUR28 to EUR54 previously) The pipeline of future licensing deals looks full, while the collaboration with Indorama is likely to meaningfully de-risk the scale-up. Our valuation range - which is derived from a DCF and two key inputs (royalties per tonne and capacity output) - is upgraded. Risks include access to and the price of PET waste, execution, competition and cash burn.
