TSX : C$2.50
BUY Target: C$5.50
Source: Interactive Data Corporation
based products that can be used as inputs in industrial manufacturing for a wide range of consumer products. Its products offer a reduced carbon footprint and are marketed primarily on the basis of lower cost, stable pricing and equal or superior performance. Its lead product, ECOSPHERE
BIO Sustainability — Bio resources TECHNOLOGY VALUE STOCK PENDING COMMERCIAL MOMENTUM;
MAINTAIN BUY RATING AND C$5.50 TARGET PRICE
We are maintaining our BUY rating and C$5.50 target price. Our medium-term and long-term fundamental investment thesis remains unchanged: (1) a multi-billion dollar, global, petroleum-dependent addressable market; (2) platform technology with multiple potential applications to drive well above-average long-term growth; (3) proven production process and economics, and continued strong balance sheet; (4) same or better performance at a lower cost; and (5) highly capital efficient, low fixed production cost and 100% consumables business model. Although exact timing remains difficult to predict, the tipping point remains a matter of “when” and not “if”, in our view. We think the shares are likely to be range bound until there is clear evidence of accelerating revenue momentum overall, and commercial entry into the building products sector in particular. Nevertheless, we see this as a rare value stock in a strong technology market supported by US$1.43/share in cash and US$1.55/share in working capital.
Valuation Our C$5.50 target price is based on our five-year DCF model (15% discount rate, 4% terminal growth rate). This should be an exceptional business (very high free cash flow) once volumes build in earnest, but investors will not pay fully for this potential until visibility improves, in our view. Our view is they will very quickly once more meaningful growth is evident.LATEX binders, is used commercially in the coated paper and paperboard industry. All amounts in C$ unless otherwise noted