A buy rating on this “green” chemical maker was just initiated by Canaccord Genuity, and the consensus by analysts is a price target of $17.33.
BioAmber (BIOA)
from 100% Letter
BioAmber (BIOA) BioAmber makes chemicals that are derived from renewable feedstocks, mainly corn. These bio-based chemicals are “drop in” replacements (i.e. exactly the same) for the petroleum-derived chemicals that currently dominate the market. The chemicals are used in a huge variety of everyday products, including clothes, plastics, personal care products, paints and even food.
The company has a market cap of $200 million and has been extremely successful securing equity partners and bank financing for its first major project. This is the main catalyst that should send shares soaring.
I think the share price has 100% upside within the next year as the company transitions from a developmental-stage dream into a full-fledged commercial operation.
The benefits of BioAmber’s sustainable chemicals are many. Because they are derived from renewable feedstock they have a lower carbon footprint. Their “greenness” means that products made from the bio-based chemicals can be advertised as eco-friendly, something that manufacturers crave these days.
And perhaps most importantly, BioAmber’s bio-chemicals are cost-competitive as compared to petroleum-based versions. In fact, BioAmber’s costs are 50% lower when oil is trading at $95 a barrel and corn is trading at $6.50 a bushel.
Even with today’s price of $78 oil, BioAmber has a cost advantage. According to management, if corn trades at $5 per bushel, then oil has to fall below $30 per barrel for the company to lose its cost advantage.
Industry-wide growth is expected to be 10% annually. But demand for specific bio-based chemicals is growing far faster. And these are the chemicals that BioAmber makes right now.
BioAmber is currently building its first full-scale bio-succinic acid plant in Sarnia, Canada. This plant is on track to be done in early 2015. Production start-up and shipments are scheduled for mid-2015. The company has 50% of Sarnia’s production already under contract by Vinmar, a global marketing and distribution company, and PTTMCC Biochem, a Thailand-based JV between Mitsubishi Chemical Company and PTT Limited.
Sarnia is just the beginning of BioAmber’s North American manufacturing expansion. The company has plans to build a second plant in 2017 which would be far larger than Sarnia.
While plans for plants #3 and #4 are more conceptual in nature, plant #2 is more firm.
Factoring Sarnia and plant #2 into the equation we’re looking at a company that has 100% to 200% upside potential. If we factor in additional plants, then BioAmber has 500% to 1,000% upside potential. In other words, were getting in fairly early with a potentially huge opportunity.
In 2014 sales will decrease to $1.4 million as its customers have received lower pricing in-line with that in the long-term contracts that will be fulfilled from Sarnia production (where costs are far lower than in France). 2014 sales will be absolutely dwarfed in 2015 when I expect BioAmber to grow revenue by 1,000% to over $18 million. And with a full year of production in 2016, sales should grow by over 300% to nearly $80 million.
If plant #2 comes on-line in mid 2017 then sales growth could jump 50% to $125 million. From here estimates get considerably more foggy, but roughly speaking we could see $850 million in sales in 2020 and $1 billion plus in 2022.
I don’t see BioAmber turning a profit before 2017. That’s not a deal-breaker for me at all—it’s just the reality of a developmental stage company needing a window to reach profit stage. I expect the company will lose around $1.75 per share this year and $1.25 next year. Then in 2016, losses should drop to $0.50 per share.
BioAmber has a ton of upside potential. The stock could easily double in the next year as revenues explode. And it could return several hundred percent by 2016 as the business model is further validated. If Sarnia goes off without a hitch, plant #2 comes on-line and plants #3 and #4 come to fruition, we could be looking at a 500% to 1,000% return here.
The potential is clearly exciting. But let’s temper that enthusiasm with a little real-world caution: don’t go overboard investing in BioAmber. Remember that things don’t always go as planned, and that investing in an early-stage company such as this means assuming some risk in order to earn the big return.
Tyler Laundon, The 100% Letter, 100percentletter.wyattresearch.com, 866-447-8625, November 12, 2014