Origin Materials Conference Call Highlights: Analyst Upgrade

Breakdown of the latest quarterly conference call

The newest developments for Origin Materials ticker ORGN have been intriguing. So, I decided to read the latest conference call transcript. ORGN is one of my deep value stocks I looked at in my Substack article in June. It was trading about 60% below net tangible asset value, with a great balance sheet. It is still 39% below NTAV at 1.58 a share. I brought up the promise they saw in the bottle caps business. It was pretty obvious even back then.

Accounting for the coming revenue from this new customer the stock will be trading for just roughly 1-2X annual sales. You know I like this through the lense of a deep value play, but for a profitable company, that is a cheap to fairly valued valuation for about any industry in the current market environment. They sound very upbeat about more customers and licensing coming also.

There is only one analyst that I know of covering this company. They are at Bank of America and recently upgraded their price target to $3.00 in mid-August and issued a buy rating up from hold. This is based on the potential for profitability by 2026. EBITDA profitability is forecast as early as 2027. The analyst also notes he sees long-term potential in the technology to convert chloromethyl furfural (CMF) and hydrothermal carbon (HTC).

Most recent conference call highlights

"We have already seen extremely strong interest in this welcome addition to our PET cap product line. With our leading PET cap technology and manufacturing systems, we are extremely well positioned to address a $65 billion dollar caps and closures market that consumes billions upon billions of caps per year which today cannot be recycled into new caps, only downcycled. “

They say their caps perform better than today’s HDPE and polypropylene caps in ways that can improve product shelf life, and the caps are designed for circularity – with no additives used to modify the polymer.

In Switzerland and Germany they tested all manufacturing line subsystems at full-speed and are pleased with the system’s performance.

They announced a European PET cap mass production partnership with Bachmann Group, a respected Swiss packaging production and logistics company. Bachmann Group will assist in the end-to- end operation and automation of PET cap mass production lines, helping produce billions of caps.

They expect the onset of new revenue from the caps and closures initiative to be as early as Q1 2025. They anticipate caps and closures revenue in 2025 to be significant, recurring in nature, and with a margin growth profile that will drive us to overall cash positive operations within our existing cash resources, eliminating the need for an equity capital raise on our way to sustained profitability.

Commercialization Update

First signed customer for PET caps and closures. Expected revenue of over $100 million in the initial two-year term. Anticipated revenue ramp-up from 2025 to 2026.

Production and Capacity

Commercial production on track to begin in Q4 2024.

Financial Outlook

Path to profitability without additional equity capital. Cash runway of over $130 million. Expected 2024 net cash burn between $55 million and $65 million. Revenue generation from caps and closures business expected to start in Q1 2025. Significant gross profit generation beginning in 2025. Technology and Market Position: PET caps designed for circularity and sustainability. Potential licensing agreements with key players. First to market with cost-competitive PET caps. Strong demand for PET caps, considered the “holy grail” for packaging circularity.

Future Growth

They say the market size for caps and closures is $65 billion. I found a source that estimates the market to grow 6% a year CAGR to $125 billion by 2032.

Sources:

http://originmaterials.com

Caps & Closures Market Size, Share | Industry Analysis, 2032

http://fortunebusinessinsights.com