O2 producing FDCA makes sense as it's higher margin, needs more limited capacity and will pay a 3-6% royalty to Avantium.

Seems to me that the elephant in the room is why nobody wants to make a strategic investment in O2 if there is $9 billion in offtake.

I'm not so sure the licensing model will be that lucrative. 5% of $9 billion is $450 million spread over maybe 4 years. If they net 25%, so $30 million, which would be high, the share price at a 25 p/e with 170 million outstanding would be $4.41. There are obviously bottle caps and other uses for the output but for the stated offtake it doesn't seem that attractive to me unless I'm missing something.

And everybody and their brother is in biofuels these days so the market could get saturated.

This post was edited on 8/9/23 at 6:48 pm

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Posted by GeneralLee

Member since Aug 2004

13112 posts

Posted on 8/10/23 at 5:27 am to Diseasefreeforall

Yeah if the economics for licensed plants are similar to the economics for the new O2 plant released yesterday, then it’s only a 17.5% ROIC. Most licensing deals have a hurdle rate on the ROIC at about 15%, so that’s not much room for profit. I don’t care about products like FDCA being higher margin (on revenues), the bigger issue is earning margin on capex $. Still digesting yesterday and still shocked.

Thinking about doubling my position here (in terms of $ invested), then selling that doubled position at a 2X in the ~$3 range in a few months, then moving on and trying to forget that I ever heard about this stock.

This post was edited on 8/10/23 at 9:02 am

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