Shares in materials science company Origin Materials Inc. rose almost 30% on Friday following an analyst upgrade and its announcement that it signed a customer for its new recyclable plastic bottle caps that anticipates buying $100 million of the product over two years.
Shares in Origin (Nasdaq: ORGN) closed at $1.43 on Friday, up 33 cents on the day. And that was after its share price rose 22% from 90 cents per share to $1.10 the day after a conference call and presentation with investors and analysts.
Rich Riley, co-CEO of West Sacramento-based Origin, didn’t name the customer during the conference call, but he said the new product is seeing increasing demand and he anticipates more contracts.
The first customer committing to $50 million per year is “an idea of the quanta per customer we can see in this business,” Riley said. “We have a robust pipeline of potential customers."
In a research report released Friday, Bank of America Global Research analyst Steve Byrne upgraded Origin stock from "neutral" to "buy," with a $3 price target, up from $1.35.
“While we continue to see long-term value in Origin's biomass conversion technology, this ramp in PET closures has pulled forward our estimate of EBITDA breakeven to 2027 versus 2029 previously,” Byrne wrote.
"EBITDA" is earnings before interest, taxes, depreciation and amortization.
Origin launched in 2008 to perfect technology to remove petroleum from PET plastic, replacing oil with renewable zero-carbon biomass like scrap wood.
The company for a year has been operating its first biomass conversion plant in Canada, which was a $130 million investment. Its next plant, to be built in Louisiana, will cost more than $1.6 billion to build. Origin has been looking for short-term revenue boosters as it prepares to build that facility.
A year ago, analysts' opinions cratered Origin shares after the company said it would take years longer to fully open its second manufacturing plant and that it would get into the biofuel business. In August last year, Origin shares fell more than 66% after the company announced its entrance into the biofuel business to more quickly bring on additional revenue. Analysts expressed concern about the heavy competition among makers of biofuels, which are a low-value commodity.
But being the first company to deliver a fully recyclable PET plastic container closure, as Origin announced last week, excited analysts, who said the businesses was differentiated and has the potential to generate strong revenue.
The analyst report also expressed optimism about the company’s guidance that it would not have to raise capital, as the cap-business revenue would begin in earnest in the first quarter next year.
At the end of the second quarter, Origin had $132.2 million in cash, cash equivalents and marketable securities, which is enough money for the company to operate for the foreseeable future without having to raise capital through an equity sale, said Matt Plavan, chief financial officer.
The existing capital will give the company runway to make it to its expected onset of new revenue in the first quarter of 2025, which will also be the start of “significant recurring revenue” from caps and closures, Plavan said.
Riley said cap production should begin at the end of this year, and Origin anticipates revenue to begin early in 2025, ramping up quickly in 2026.
He said Origin will be first to market with PET caps. The company will also license its technology, which will add revenue to its PET caps business.
Origin tested its cap production on high-speed machines with optical quality controls during July in Germany and Switzerland, and it produced more than 1 million caps to check quality control and production methods.
In the European Union, Origin is also lining up customers for a fully recyclable and tethered cap, to meet EU requirements for tethering caps to bottles for a more complete circular and sustainable waste stream.
“They perform better than today’s other plastic caps," said John Bissell, co-CEO of Origin, calling the PET caps “the Holy Grail for packaging circularity.”
He said Origin’s PET caps are more effective and lighter than the softer plastic that makes up most plastic caps.
Earlier this year, Origin announced it had developed the first fully recyclable PET plastic bottle caps. All existing plastic bottle caps are made of a softer plastic that is not easily recyclable like the PET plastic that makes up most beverage bottles.
The company said it has lined up manufacturing partners domestically and in Europe.
