Symphony Environmental Technologies plc (LON:SYM) has announced an exclusive supply agreement for its d2p (designed-to-protect) antimicrobial technology with a major customer. Grupo Bimbo (NASDAQ: BIMBOA) is one of the largest bread manufacturers globally. The company has conducted extensive trials of d2p for its plastic bread packaging, with the aim of extending the life of products, improving hygiene, and reducing waste. The company has asked SYM to supply d2p for its nominated bread packaging manufacturers across the American continent for a period of three years, which can be extended by agreement. Given the size of Grupo Bimbo’s operations (i.e., $17bn of annual revenues) there is potential for significant sales for SYM over the coming years. We will update our estimates as more information on the phasing of d2p product rollout becomes available, but this agreement signals to us that risks are now on the upside. Our DCF-based valuation is 35p, indicating good potential upside to the current share price of 16p.
Agreement with Groupo Bimbo – Symphony Environmental Technologies has announced an exclusive supply agreement for its d2p antimicrobial technology with Grupo Bimbo. In our view, the agreement represents a significant commercial advance for the d2p product range. Grupo Bimbo is one of the largest bread manufacturers globally (grupobimbo.com). The company has probably 20% share of the USA market for packaged bread products, with revenues of $17.2bn and EBITDA of $2.4bn reported in 2021a.
A long-standing customer relationship and technology underpinned by FDA approval – Grupo Bimbo has a 10-year relationship with Symphony which initially focused on d2w technology, helping to make bread packaging oxo-biodegradable and recyclable. Following extensive trials of d2p for bread packaging over the past two years, Grupo Bimbo has requested supply of d2p antimicrobial masterbatch for its nominated packaging manufacturers across the American continent. The supply of d2p in the USA (the West’s largest bread market), Canada, and Mexico will be exclusive, and Grupo Bimbo has first-refusal for other countries in the Americas. We believe future revenues from this agreement could be highly significant for SYM. To recap, in part this agreement stems from the exclusive regulatory approval secured from the FDA in the USA in 2020 and from Health Canada in 2021, for use of d2p in bread packaging plastic films.
Peru ruling on d2w products and microplastics – Separately, on Monday, SYM announced that its distributor in Peru had won its case with the Peruvian Government on adoption of d2w oxo-biodegradable products. The Peruvian Ministry of Production has now acknowledged that there should be no impediment to usage of oxo-biodegradable technology, and that there is a clear distinction with other biodegradeable technologies which can generate harmful microplastics. This ruling is supported by independent scientific studies which show that d2w allows plastics to degrade into harmless residuals. We believe that this is an important step in supporting wider adoption of d2w technology across Latin America and elsewhere.
Outlook and Zeus estimates – Symphony Environmental reported full year results in late March (see: Solid progress despite challenges, 31 March 2022). At the time, the outlook statement was cautious but positive. Management stated that trading had started to improve following a slow start to the year. Continuing high shipping costs and delays remained a concern but some raw materials costs had started to reduce. Overall, the Board stated that it was confident that commercialisation and financial performance would be much stronger in 2022e. We think the announcements yesterday and today are validation of this positive outlook on commercialisation and the pipeline.
Summary financials
| Price | 16.0p |
| Market Cap | £29m |
| Shares in issue | 177m |
| 12m Trading Range | 14p–29p |
| Free float | 38% |
| Next Event | AGM – 29 June |
Financial forecasts
| Dec. y/e (£m) | 2021a | 2022e | 2023e | 2024e |
| Revenue | 9.2 | 11.9 | 14 | 16.6 |
| Gross Profit | 3.6 | 5.1 | 6 | 7.1 |
| Adj. PBT | -1.5 | 0 | 1.1 | 2.1 |
| EPS (p) Adj. | -0.8 | 0.1 | 0.7 | 1.2 |
| DPS (p) | – | – | – | – |
| Net cash/(debt) | -0.3 | -0.2 | 0.7 | 2.6 |
| P/E | -30.1 | – | 23.9 | 13.3 |
| EV/EBITDA | -24.9 | – | 30.5 | 14 |
