Recyctec – the last issue?


Prolonging the list of issues during 2016, Recyctec began 2017 with an announcement of a preferential rights issue on January 13th. During 2016, the company have muddled its way through. Production problems during summer, which turned over plans for a break through and breakeven, has made things difficult for Recyctec. This even after private placements in March and June and a 10 MSEK loan in December. Hopefully, this issue will provide enough funding to allow the company to focus on sales. The financial goals are profits in 2017 and a turnover of more than 100 MSEK with a margin of more than 30% in 2020. Probably this is the last issue from Recyctec.

To achieve these goals the company asks for app. 24 MSEK from the owners. Ten MSEK is to pay back loans and the rest for expanding the company. After the issue, the company will apply for listing at Nasdaq First North. Today the company is listed at Aktietorget.

Recyctec in short

The company have invented a method to clean glycol for reuse. Glycol comes from oil and Recyctec is the only company that can fully renew glycol. We use glycol in cooling systems, in industry and for de-icing planes. It is no doubt that Recyctec has the potential to be globally present. Today the company has production facilities in Sweden and sources used glycol from Norway and Sweden. The sources of income is two-fold since the company is payed to receive the used glycol and the sells the renewed product. It is a privileged business: Not many companies are payed to receive their raw materials. Recyctec sells the renewed glycol both in bulk and under the company’s own label, Earthcare Glycol.

The Issue

The price at the preferential rights issue is 3 SEK. Current shareholders gets one warrant for each share and can subscribe one share per two warrants. In order to get warrants you have to hold shares by February 3th. The subscription period is from February 9th to 25th. See my short guide to share issues. At present, there are app. 16 million shares and the issue will bring the number up to 24 million. By the end of February, the issue will be complete and during spring, the company will change list to Nasdaq First North – if approved. See the press release.

Recyctec: Investor’s nightmare

The Recyctec share is not the investor’s wet dream. On the contrary! During 2016, the share has lost two thirds of its value and by the end of 2016, the price was 6 SEK. To top this, the issue price is set at 3 SEK. After the announcement of the issue, the price fell heavily and today it hoovers around 4 SEK. I bought my first, small position at 24 SEK in July 2015. So far, I have only lost money on Recyctec.

Participate? … Yes.

Still I plan to participate. First, because 3 SEK is an attractive price. The market also think so, since the share price has not fallen closer to 3 SEK, as it has. Often the price falls dangerously close to the issue price leaving only a very tight margin as premium for taking the risk. A week before the last day with rights to participate in the issue, the premium is 30 %.

Second, the company is very close to a market breakthrough. Therefor I expect a high growth in the next years.

Third, Recyctec is in a business segment with a strong tailwind – even despite Trump. Renewed products from non-renewable sources have a high priority.

Four, more and more countries puts restriction on how to dispose of waste. Glycol is a hazardous waste and as such, users will look for safe ways of disposing. The global demand for safe disposing or reuse will rise.

Five, if the margins communicated by the company (‘more than 30 %’) stands there is room for a much higher share price even with a very conservative P/E-ratio.

Six and last: the current, major owners have made a guarantee of 100 % of the issue price. In other words, they have a very strong confidence in the company.

Check out my growth share portfolio, the share price trigger list or my EGS (Evaluation of Growth Shares) Model.

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