The average European Union citizen uses about 500 plastic bags every year, according to the EU. This is equivalent to 3.4 million tons of plastic, or the weight of two million cars. Many of the bags end up bobbing around in rivers and oceans. The EU estimates that there are already 250 billion plastics particles in the Mediterranean alone. In the Pacific, years of dumping used bags off the Californian coastline have created a vortex of plastic that is now twice the size of Texas.
One solution to this problem is Symphony’s d2w technology: d2w is an additive that is mixed with basic polymer resin during the manufacture of plastic bags. Depending on the concentration, it remains dormant until a set future date (say two to five years – or much more quickly in hot climates), after which it starts a process whereby the plastic is degraded into water and carbon dioxide. The process is called oxo-biodegradation and occurs naturally when the material is exposed to either light, heat or airborne bugs.
Governments and corporations are showing an interest in the technology, which is already sold worldwide. Symphony said recently that legislation in the United Arab Emirates and Italy (which have banned traditional plastic bags) highlighted that nations are taking the plastics problem seriously. So there is ample room for further growth.
Symphony Environmental (Aim: SYM)
Analysts forecast 2011 turnover and underlying earnings per share of £9.3m and 0.9p respectively, rising to £10.9m and 1.3p in 2012. This puts the stock on a price/earnings ratio of less than ten. I rate Symphony on a ten-times 2012 earnings before interest, tax and amortisation (EBITA) multiple, which– adjusting for £0.6m of net cash – generates an intrinsic worth of 13.5p a share.
The company is still small and could be squeezed by rivals, another recession, or alternative technologies such as compostable bioplastics. A drawback of oxo-biodegradation products is that, by design, they do not work as well when compacted underground, conditions that often arise in landfill.
Symphony could however prove to be sweet music to the environment and to shareholders. House broker Seymour Pierce has a price target of 19p.
Rating: SPECULATIVE BUY at 8p (market capitalisation £10m)