Symphony Environmental: Further regulatory approval for d2p

Recent news from Symphony Environmental plc (LON:SYM) has been positive. In mid-July, the Group said that trading for the interim period had been strong. Separately, Symphony received U.S. Food and Drug Administration (FDA) approval for a much greater loading and wider use of its d2p antimicrobial technology for bread-packaging. Today, regulatory approval in North America has been extended. Symphony has received approval from Health Canada for use of d2p in bread packaging in that country. Approval applies to widely used polyolefin and polyester multi-layer films for wrapping bread. The effect of using d2p technology is to inhibit the growth of bacteria on the surface of the packaging film. This is good for food preservation and reduction of food waste, and for less use of preservatives.

Regulatory approval enables the d2p bread-packaging project to proceed more quickly to commercialisation. The bread packaging market in the USA alone is valued at $20bn1. Our forecasts are unchanged currently but strong commercial sales in the USA and Canada of d2p antimicrobial films would shift the risks to the upside. The full interim results are due in mid-September. Our DCF-based valuation remains 35p.

Valuation method – We value the Group using a 10-year DCF of post capex net operating cash flows. We apply a discount rate of 8%. This is against our calculation of a WACC of 8% for the Group using a risk-free rate of 2%, equity risk premium of 6% and blended industrials & technology beta of 1x. Our terminal growth factor is 2%. Our estimates are unchanged currently, and the valuation remains 35p.

Risks – Political and regulatory, competition from suppliers of similar products, commodity prices, although symphony Environmental mitigates this risk by using more than one supplier of its raw materials and seeking supply alternatives as needed, and, FX, but also mitigated by matching costs and revenues, and by using forward contracts.

1 – Global Data report 2019 Bread & Rolls/Bakery & Cereals Market in the United States of America – Outlook to 2023)

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