CIRCA – A potential giant in the chemical industry

We have bought Circa shares and Norske Skog (owns 32% of Circa) based on the below article from SeekingAlpha:

https://seekingalpha.com/article/4407578-gain-exposure-to-hot-scandinavian-ipo-circa-through-largest-shareholder-norske-skog

Today, Pareto Securities published a research report titled A Potential Giant in the Chemical Industry.

The price target is 30 NOK, 90% upside from today share price

Pareto research summary is below:

Founded in 2006, Circa is a biotech company that has developed the world’s first and only scalable production process for converting biowaste into several high-value biomolecules. While chemicals are essential for the modern society, most of them have hazardous properties, and arenow being driven out of global markets by regulation. This provides a once in a generation opportunity for companies like Circa, which holdsthe pole position in our view. A story the market not yet believes in, trading at a 50% discount to our risked SOTP valuation. As such, we initiate coverage with a Buy recommendation and TP NOK 30 – a potential upside of ~80%.World’s only scalable production process for high-value biochemicals

Established in 2006, Circa has developed the world’s first commercial process for manufacture of the platform molecule, LGO, derived from cellulosic waste. With 15 years of R&D and five pilots, the company has gained strong global interest with its first commercial biochemical, Cyrene.Circa will now commence construction of a 1,000 tonne production facility in France, providing the foundation for several larger plants of up to50,000 tonnes.

Once in a generation upheaval of the chemical market
While chemicals are everywhere and fundamental in daily life and activities, the industry places a significant toll on human health and the environment. Traditional fossil-based chemicals are under increasingly regulatory pressure and will be banned once suitable alternatives becomeavailable at scale. Here Circa stands out with its main product, Cyrene, already widely acknowledged as one of very few biobased alternatives tocertain fossil and toxic chemicals.
We initiate coverage with a Buy and TP NOK 30
In our view, Circa holds the pole position in R&D and process knowhow with a 10-year head start to any other competitor. This along with regulation driving once in a generation upheaval of the chemical industry, we think Circa potentially is positioned for a decade of superprofit. We estimate revenues of EUR 960m in 2030E with an EBITDA-margin about 50%. The share currently trades at a 50% discount to our risked SOTP.
We thus initiate coverage of CIRCA with a Buy and TP NOK 30/sh, corresponding to 13.5x EV/EBITDA’25E.

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