Origin Materials: Slightly Undervalued (But Not By Much From What I Can See)

Origin Materials has reported its Q4/FY 2023 earnings, and they did do slightly better than expected in terms of losing less money than analysts estimated. They were expected to post -0.14 EPS, but instead reported -0.07. This makes sense, as the company announced a workforce reduction of 30% back in November 2023. This cost cutting measure was done in support of their near-term "cash conservation" goal. Along those lines, the company highlighted an expected 2024 cash burn of $55-65 million atop their earnings release

Now, to revenue. The company was expecting to post $25-30 million for the full year 2023 (revised down from $40-60 million in the second half of last year). They reported $28.8 million, falling in-line with their revised downward projection for the full year. CFO Matt Plavan has guided revenue of $25-35 million. Also, a scantly detailed "pathway to profitability with no additional equity capital required" was announced, based on the company's "caps and closures" business. Separate from the low carbon materials business, which is now being referred to as "biomass conversion technology," the "caps and closures" business is expected to start generating revenue within the next 12 months. Though details are scare, we do know that the company has identified the equipment necessary to produce such caps, successfully completing three manufacturing development runs thus far. Partners have expressed interest and are now at the "letter of intent phase."


While this all may seem like good news, the lack of details and concrete numbers generate more uncertainty. Perhaps it is a case of IP protection and ongoing negotiations. However, until we are informed of what kind of revenue the caps and closures business can generate, I feel that the stock is fairly valued at the company's "cash floor" level, which it claims it will be able to maintain through 2025. I estimate that number to be $95 million, based on 2024 cash burn and revenue projections and the company's current cash position. A market cap in that ballpark makes the common stock worth about 65 cents.

During a question and answer session, co-CEO Rich Riley proclaimed that the stock is "undervalued." I would certainly agree with that sentiment, but with a caveat: not by much, at least for now. Until the company's plan for growth can be clearly financially demonstrable, I feel that the company's valuation based on cash is most fair. A dollar value can't be justly assigned to the technology and intellectual property because the unit economics are still unknown. While that very well may be the company's ultimate end goal for hyper growth, it cannot be its saving grace and priced into the stock until there is more clarity. The market needs to see it to believe it. Until then, it's caps and closures to keep them afloat.


Fun Fact: According to the Association of Plastic Recyclers, PET sinks while HDPE and PP float in a bath float/sink process during the recycling process. 

Post-Script on Origin 2: Also announced during the call was the fact that management seeks to acknowledge they will not be able to build O2 on their own and the future of that project seems to rely solely on partner financing. While there was no mention of government grants or funding via tax-exempt bonds from the state of Louisiana, those two options are assumed to still be on the table. Regardless, what was set to be the company's world-scale mega manufacturing plant appears to not be the primary focus right now.

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