With global plastics consumption continuing to grow, a company that aims to make plastics smarter should have a strong role to play. Symphony has developed and is selling a range of additives that help control the life of plastic with huge environmental possibilities while newer product areas, focused on protection, are emerging out of an investment phase. With high gross margin potential, the benefit from operational gearing will have a positive impact on forecasts. An early stage company with exciting potential ahead. Technical trials and consumer listings should provide positive newsflow.
Making Plastics Smarter through specialist masterbatch development and supply: Its controlled life products (d2w) generate revenue with established global distribution: New “designed to protect” offering (d2p) exiting investment phase so has…: …scope to leverage its strong distribution network and d2p potential: Use of 3 rd party manufacturing provides cost base flexibility: Plastics is multi-$bn industry and growing – enhancing growth opportunities: …increases need to control degradation and hygiene factors
Symphony Environmental is a specialist plastic masterbatch developer and supplier. This means it has a product suite that helps makes plastics smarter. Global plastics is a multi-$bn market, with c350m tons of polymer produced annually, and estimated to be growing at 3-5%. While the company is at an early stage of its development it already delivers masterbatch, an additive to the manufacturing process, that helps control the degradation of product (d2w). A newer product area is focused on protection and hygiene (d2p – “designed to protect”) is coming to the end of an investment phase. The group has 3 rd party manufacturing arrangements in place which along with its global distribution network gives it a genuine international presence. This means that the structure has been established, it has the products and now needs to develop the routes to market. Operational gearing is high which should provide healthy upside to earnings forecasts.
Current revenue largely consists of its d2w product and we believe that legislation, particularly in emerging markets, will be a positive driver to this revenue stream. We also see the group as operationally geared so bigger contract wins should drop through to profit. With a c50% gross margin the potential for an acceleration in forecasts. Conversion of its current revenue in testing could see a sales base 4-5x larger; applying a heavily discounted EV/EBITDA multiple of 7x implies an enterprise value of c£70m, suggesting significant upside once prospects convert.