Itaconix – World class tech and partnerships #ITX

Itaconix – World class tech and partnerships #ITX

Itaconix (formerly Revolymer) (ITX) is the world leader in developing and producing bio-based polymers from itaconic acid (more on this below).

Previous management were not too successful, generating more than £50 million in negative retained earnings. But new management since last year have right-sized the business, closing UK operations, and injected £3.4 million into the company at 2p per share. Itacnox co-founder John Shaw is CEO once again and invested £600,000 of his own cash into the business (latest share price 3.8p ask, market cap £10 million).

Itaconic acid

Wikipedia has some information about this. Thankfully Itaconix explains the technology in more detail on its website. It currently holds 42 granted patents covering compositions, processes, and applications.

Reducing production costs has made it economically viable:

(source: Itaconix)

Itaconix has three primary products:

I’ve highlighted AkzoNobel (now Nouryon) and Croda because they are numbers 1 and 2 globally in their fields. In January 2017, Itaconix signed an exclusive global supply and marketing agreement with Croda. In May 2018 Itaconix entered into a similar agreement with Nouryon.

Developments since recapitalisation

New licence agreement – non phosphate detergent (5th December 2018)

Itaconix has announced a “Licence Agreement for Non-Phosphate Automatic Dishwasher Detergent Formula Based on its Itaconix® CHT™ Polymer”. The agreement is with New Wave Global Services who develop and supply private label brands for major retailers across North America and Europe. New Wave will use the Itaconix “formula to market and produce a new triple-chamber ADW detergent sachet for North American retailers in the private label market”.

Detergents – supply agreement Nouryon (15th January 2019)

Shortly afterwards, Itaconix signed the agreement with Nouryon to “produce and supply certain proprietary polymers with chelating properties that Nouryon will market to its customers in household, institutional, and industrial detergent and cleaner applications”.

Full year trading update – costs slashed (18th February 2019)

The February trading update shows the company has slashed its cost base to £2.1 million p.a. and that “unaudited EBITDA was in line with expectations. Click here for a CEO interview which occurred around this time..

Personal care agreement – Nouryon (28th February 2019)

Itaconix then signed a personal care agreement] with Nouryon covering “hair care, skin care, body wash, sun care, and cosmetics”. Click here for a video update on the significance of the agreement.

And click here for an update posted last week.

European Order for New Detergent Polymer – (3rd May 2019)

Following trials, Itaconix has received its first order from a European customer for its latest bio-based polymer. The customer is a “major producer of non-phosphate automatic dishwashing detergent products”.

CEO comment – “As phosphates are phased out due to environmental concerns, our novel bio-based polymers are stepping in to enable a new generation of safer detergent products that set new standards for performance, value, and increased sustainability.  We expect European detergent use will support our forecast revenues for 2020 and beyond.”

The EU has taken steps to reduce the use of phospors in detergents, to stop them getting into rivers and lakes as they can result in excessive algae growth.

Analyst Guidance

The company has made meaningful progress towards its forecast revenues. When I spoke to John Shaw, I was able to confirm that forecast revenues referenced are from this analyst note (free account required – I recommend downloading it). The forecasts are as follows:

The analyst believes that based on the above numbers Itaconix will move towards break-even/profitability before requiring additional cash – although a small top up placing may be prudent, depending on developments. Here’s an interview with the analyst (he is highly qualified, though it’s important to understand that the research was commissioned by the company).

Investor relations – excellent

John Shaw’s telephone number is listed in RNS statements. I rang the number recently: John answered the phone and was happy to speak with me and discuss the business. The one big take-away for me was that John is conservative and wants to make sure that the broker projections are hit – something Revolymer never did. If John succeeds in this, he could take Itaconix to cash flow breakeven without any further fundraising.

I believe the market is not correctly valuing the progress that Itaconix has made in the last 6–12 months and the turnaround in the company being achieved by new management. Itaconix is still relatively early stage and therefore high risk, and its shares are illiquid. However, the strength of its technology, partnerships and supply agreements led me to believe that the company is worth putting at least a small percentage of my portfolio it.

 

At the time of publication the author holds a long position in ITX.

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