Origin’s decarbonizing technology addresses a ~$1 trillion market opportunity, and is anticipated to revolutionize the production of a wide range of end products, including clothing, textiles, plastics, packaging, car parts, tires, carpeting, toys, and more.Origin now has partnerships with Nestle, Danone, and Pepsico who are some of the largest plastic users in the world. Match that with their connections from their board, they have the chops to make this work and scale
Origin has customer demand based on signed offtake agreements and capacity reservations by 90% to 1.9 Billion.
Origin Materials have developed technology out of UC Davis which creates plastics out of scraps of organic material:
- wood pulp
- rice hulls
- sugar cane stalks, etc.
This process ends up capturing the carbon that would reenter the atmosphere when the scrap material decays into plastics making it an incredibly effective way to capture carbon. Deloitte did some independent analysis and showed it captures 300% of the carbon used in the manufacturing process making it one of the first carbon negative production processes!
Not only that, but since they are using scrap material the production costs are not tied to inflation or any other material such as oil.
In fact, they estimate producing these bioplastics at a cost which will be competitive with current oil based plastics – and that doesn’t even include any carbon credit incentives!
Origin is currently building the Origin 1 plant due EOY 2022 which will be their testbed plant that is focused on refining and optimizing their full scale production for both current and future materials. From there, EOY 2024 will mark the completion of their Origin 2 plant which will be a full production scale facility and also create a positive EBITDA. From there, they plan for 5 more plants estimating a $2.3bln EBITDA by 2030! This company has the potential to absolutely boom!
These folks know their chemistry. Lots of names out of UC Davis where this tech was developed, so this isn’t just some pipe dream MBA bullshit. They also have lots of leadership out of the chemicals production space from the likes of Dow Chemicals. So that’s great on that level, but how do we know they will actually be able to execute?
- Board Chair – Karen Richardson who is also a board member of BP.
- Boon Sim – Leader for both Credit Suisse and Temasek Holdings – aka the sovereign wealth fund of Singapore which is known for being one of the most sophisticated funds in the world.
- Along with that, execs from Clorox, Dupont, and P&G. So tons of experience and connections with huge players. I was on the fence until I saw who was on the board – now I’m stoked.
Insider Buying and Investment
- Just before merger, Charles Drucker bought an additional 650k shares bringing his total ownership to 18.862,500 shares.
- On top of that, Apollo Funds invested $30m in Origin furthering my confidence in the company.
- On June 25th, Lior I. Amram and Evergreen InvestCo bought 10m shares furthering the large long term investments in the company.
Ridiculously Tiny Float
The current available float is sitting at 29m – but wait, there’s….Less?
With the buying mentioned above, this is reduced to only 18.23m shares.That is tiny! We are only starting to get a sense for institutional ownership. There just aren’t that many shares available right now so that means the price will be heavily affected by even a small increase in demand. More volatile? Yes, but also will make a runup in price all the more likely.
The market is currently pegged at $1tln of potential, so there is tons of room for expansion. But let’s take a look at Danimer Scientific who was another company which merged last year and also looks to produce bioplastics. If you look at their investor presentation you can see they are further along, but their maximum production after all their facilities are built is just a little above what one of the 6 production plants of Origin. And on top of that they have to use vegetable oils, so are prone to crop inflation. Right now they are valued at $25 which according to their data puts them at a 14x multiple of their future EBITDA and a 15% discount rate. The same comparison would put Origin up over $40 a share today.
Origin is primed to cash in on the current boom, Their current projects look to double in EBITDA when forecasting for the potential of carbon capture premiums and other environmental opportunities. They can also license their technology to other companies since there is a huge market which one company can never fill. When looking at the demand, they have already gotten $1bln in offtake commitments – and while they could have more – they have chosen to reserve capacity for higher margin items.
On top of all that, Origin now has partnerships with Nestle, Danone, and Pepsico who are some of the largest plastic users in the world. Match that with their connections from their board, they have the chops to make this work and scale. And to go along with that, the merger (with warrants) will provide them with enough funding to get to their EBITDA positive timeframe with another $250mln in buffer. So there is very little risk of dilution via share issuance.
Beyond their factories, they are also looking at licensing hte technology for another revenue stream to further accelerate growth (none of my calculations take this into account). The potential for additional revenue is just absolutely massive since there is a $1 TRILLION addressable market opportunity. Once in a lifetime opportunity.
Origin doesn’t have any direct competitors, but it does have some analogs. Danimer Scientific is one, but their focus is on biodegradable plastics. They use canola oil as their feedstock so their price is tied to the price of the commodity – and even at relatively low costs today they still cost $1/lb vs $0.29/lb for Origin. Also, there are a ton of products that shouldn’t be biodegradable – car parts for example shouldn’t be degrading! Purecycle is another analogue, but has the same issues as Danimer Scientific.
In the end, there is no other company that is looking to make carbon negative plastics.
Elephant in the Room
Plastics are an environmental problem. There are microplastics that are increasing in concentration in the ocean and in ocean life specifically and they have become a disease on the planet. Why am I okay with this personally for Origin? Well simply, it is a step in the right direction. There are a large number of applications which require non-biodegradability but ultimately this begins to get market penetration with zero modification for carbon reduction. It’s a trade off for sure, but it’s only the start.
Things start to look much better with net zero fuel pellets and water filters, carbon black, and agricultural applications which (aside from the fuel) are all carbon negative. In the end, this is an insanely huge step towards reducing our carbon footprint and right now that takes priority for me
They currently have no revenue and are building their first plant, Origin 1. This plant is still just a testing plant and they are quite far away from revenue positive. The plant was also delayed a year, likely due to COVID, but they now have the equipment on site.
There is a huge push for countries and companies to reduce their carbon footprint, and this company is set to not only make a very profitable and sustainable product – but to also capture a shitton of carbon doing it. In the long run this company is likely going to explode in value as they have the talent, experience, and in demand product.
There are real risks here, but the upside is enormous as this is a true potential unicorn. I’m looking at a potential return of 10-30x
Disclosure Long Origin
Disclaimer I am not a financial advisor, nor is this financial advise. I have attached some references I used in my analysis and recommend you do your own due diligence.
Craig-Hallum Initiates Coverage On Origin Materials with Buy Rating, Announces Price Target of $22
Origin Materials CURRENTLY TRADES AT $7.43
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