Thread by @MylesMcNulty

New nano-cap position taken via placing: #BIOM @BiomePlastics.

A brief intro, with in depth notes to follow in due course:

BIOM has two operating divisions: Bioplastics (biodegradable / compostable plastics) and Stanelco RF Technologies (advanced radio frequency systems).

1/11

Interims out today, along with a placing at 120p for £1.1m gross. Assuming a successful GM, mkt cap at the current SP of 165p will be £6.1m.

Net cash post GM will be ~£1.8m, so enterprise value at 165p will be ~£4.3m.

My investment is solely based on the Bioplastics div..

2/11

..which is a rapidly growing biz operating in a rapidly expanding market that I believe will become an increasingly hot topic going forward.

I'll be posting more about the products and target markets in due course, but here's a good place to start:

3/11

biomebioplastics.com

In H1, Bioplastics revs increased 71% YoY, to £2.1m (excl. grant income).

House broker forecasts FY 2020 Bioplastics revs of £5.2m (exl. £0.2m grant income).

£3.1m in H2 alone, against £2.0m in H2 '19, and £1.0m in H2 '18.

4/11

Broker note:

allenbycapital.com/research.html

For FY 2021, Bioplastics rev forecast is £7.4m.

Given its growth trajectory, coupled with the premium valuation a biz operating in this space should attract (ESG-conscious investors should move in as #BIOM grows), I think trading on 2.5x sales would be a conservative start

5/11

£5.2m x 2.5 + £1.8m (net cash) - £0.8m (central G&A + marginally lossmaking SRFT div):

= £14.0m current target mkt cap.

TVR of 3.715m (post GM).

Thus current target price of 377p.

6/11

FY 2021:

Assuming £7.4m divisional revs, YE net cash of +£0.4m and an unchanged -£0.8m for G&A / SRFT, and increasing the sales multiple to 3.0x from 2.5x, to account for the sustained high growth (which would deserve a premium):

Target mkt cap = £21.8m

Target SP = 587p

7/11

The placing price at 120p (50% discount to close yesterday) is tough for existing holders. Many won't believe it, but I was arguing for a higher price (with warrants attached) - unfortunately other new investors wouldn't support me.

Regardless, it is done and the Co has...

8/11

a large cash pile to accelerate growth in Bioplastics div.

Mgmt. is aware that it needs to promote the story better. I expect more frequent news-flow going forward.

Took the majority of the non-GM stock (so there is little to flip!); will hold ~4.5% of equity, post GM.

9/11

Whilst a 587p 2021 TP may seem punchy, I actually think it could be surpassed - and quickly.

Bioplastics is really building momentum - a couple of major client wins could propel #BIOM to a sales multiple of 4-5x or more.

ESG micro-caps can enjoy dizzying valuations.

10/11

I should add that whilst #BIOM has various patents, trade secrets and know-how, there is of course competition in the space. Moreover, it has let investors down historically (see share price!). It's also highly illiquid (I won't be exiting anytime soon!).

Caveat emptor.

11/11