Danimer Scientific, Inc.

Danimer Scientific, Inc (NYSE: DNMR) manufactures PHA, which is a fully biodegradable plastic feedstock alternative sold under the proprietary Nodax® brand name, used for a wide variety of plastic applications, including water bottles, straws, food containers, etc.

Key Updates:

• Management Update: Recently, the company declared the joining of Brad Rodgers for the post of Vice President – Technology Development R&D. Earlier, Rodgers has and worked for research and development of new technology solutions, which enhances packaging performance with the major focus of minimizing environmental impacts.
• Impressive Growth prospects: The company’s upcoming operations are likely to be supported by increasing Government’s and Corporate Initiatives to reduce Environmental Impact of Global Pollution Crisis. Moreover, the company has Strategic collaborations with corporate giants like Pepsi and Nestle and Key Converters such as Wincup and Genpak and also received Equity Investment from Pepsi, which shows strong support from industry leaders.
• Event Update: The company reported that it would announce its fourth quarter FY20 financial result on March 29, 2021.

Q3FY20 Financial Highlights:

• DNMR announced its quarterly result, wherein the company posted loss from operations at USD 0.197 million and reported interest earned on marketable securities held in Trust Account of USD 0.045 million.
• Net loss stood at USD 0.152 million during the third quarter of FY20.
• Cash and cash equivalents were reported at USD 1.398 million, while total assets were recorded at USD 201.602 million.

Q3FY20 Income Statement Highlights (Source: Company Report)

Risks: The group’s operations are comparatively new, while the group is yet to report revenue, which is a key concern. Further the entry of a new player might lead to price competition and loss of clients.

Stock Recommendation:

In the recent past, the group witnessed a rapidly Growing Blue Chip Customer Base within Take-or-Pay Contracts, while the company is focusing on expanding its Phase II Capacity Addition, which is a key positive. The Management expect its revenue and EBITDA to grow at a CAGR of ~59% and ~140%, respectively, during FY20 to FY25, driven by strong momentum from the PHA resins segment. The stock of DNMR surged ~176% and ~334% in the last three months and nine months, respectively. Although, the prices have corrected in last one month, still the stock is trading at a higher valuation from the P/E multiple standpoints. The company is trading at an NTM PE ratio of 767.30x, as compared to the industry (Containers and Packaging Materials) median of 13.7x, which implies a significantly stretched valuation. Hence, we recommend an ‘Expensive’ rating on the stock at the closing price of USD 41.84 on March 12, 2021.

1-Year Price Chart (as on March 12, 2021). Source: Refinitiv (Thomson Reuters)

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