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Origin Materials: Buried Treasure in the SPAC-Wreck?

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·6 min read
In this article:
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  • Origin Materials, Inc. (Nasdaq: ORGN) recently went public via SPAC merger

  • Company produces carbon-negative plastic alternative for bottles, apparel, asphalt

  • Origin recently said order book tripled in last several months to $3.5 billion

  • New partners include Ford Motor Company, Primaloft (works with Nike, Adidas, LL Bean)

  • Origin attracted professionals from blue chip energy companies ExxonMobil, BP Amoco

  • Company has sufficient equity capital to reach profitability so no dilution on the horizon

  • Stock trading near $5 after broad SPAC selloff, valued at only 1x 2026 Ebitda forecast

  • Comparable company multiples suggest stock could eventually be worth upwards of $100

  • This week, Co-CEO Rich Riley bought 40,000 shares; board director Boon Sim bought 50,000 shares; board director Charles Drucker recently bought 750,000 shares

By John Jannarone

Once market darlings, high-growth companies that went public via SPAC mergers have been abandoned in the wake of scandals involving a few bad actors. That creates an opportunity for shrewd investors to discover real treasures.

One such gem is Origin Materials, Inc., a company that extracts chemicals from plants used to make an environmentally friendly version of plastic. Origin has a promising future of growth underpinned by firm orders from major corporations seeking to meet sustainability goals. Some big customers are also major investors including Danone S.A., Nestlé S.A. and PepsiCo, Inc.

A PET bottle made from Origin’s material shown next to the cardboard input feedstock used to create it

The stock-price chart is not such a rosy picture. Origin shares have tanked from an IPO price of $10 to just above $5 a share, following the lead of many high-growth SPAC companies that were hammered by concerns about fraud. (Investors were understandably spooked by Nikola’s test drive stunt and a space-industry company was recently slapped with fines by the SEC).

But the rout in Origin shares looks unjustified. Indeed, the case for owning Origin has become even more compelling just as its stock price fell.

Earlier in August, the company announced that its order book had swelled to a whopping $3.5 billion, up from $1 billion in February. New partnerships include Ford, Mitsubishi Gas Chemical, Solvay and Primloft, which works with big-name apparel makers LL Bean, Nike, and Adidas. Importantly, the new orders will serve an increasingly diverse set of needs: Customers are not only consumer products companies but also in apparel, automotive and industrial end-markets.

What’s more, the company’s production ramp up is perfectly on track. Its first facility, Origin 1, is slated to be finished by the end of next year and Origin 2 in 2025. The company has partnered with major engineering firms such as Koch Modular Process Systems and Worley.

So what are investors worried about? One possibility is execution risk. After all, the company does need to build out two facilities and make plenty of deliveries to successfully reach its Ebitda target of $296 million in 2026.

But Origin’s technology is proven and ready for deployment. The company uses a highly carbon efficient chemo-catalytic process that allows it to capture most of the carbon in its input feedstocks (very cheap commodities such as post-consumer cardboard and wood residues).

That process shouldn’t be confused with other technologies such as gasification or fermentation. Those techniques lose a substantial portion of the carbon from feedstocks, resulting in inferior yields and economics. The company explains the technological differences in detail in a recent investor deck, available here.

And Artius, the SPAC that merged with Origin, did extensive diligence over a period of three months. Artius hired Bain Consulting, Chemical and EPC Teams, and Nexant, a chemical specialist consulting firm, to assess technology, plant scalability, unit economics and total addressable market. The company has said it is happy to share some of those details with investors who want to dig deeper, a great indication of transparency.

Origin is also very transparent around its ability to reduce carbon emissions. The technology has been verified through an ISO compliant Life Cycle Assessment (LCA) conducted by Deloitte, which concluded that Origin’s products are expected to be carbon negative when produced at commercial scale. It even publishes that report on its website – a rare disclosure unseen at other companies.

A PET bottle made from Origin’s materials compared with one made from petroleum

The company’s balance sheet is rock solid, with $471 million in cash. That is sufficient to carry the company to profitability without any further equity capital raises, so investor shouldn’t worry about dilution.

Origin also has top notch professionals at all levels of the organization. Founder and Co-CEO Jon Bissell has overseen the business since 2008 after earning a degree in Chemical Engineering from the University of California, Davis. Co-CEO Rich Riley also brings serious leadership credentials to the table, having been CEO of music-recognition technology company Shazam Entertainment, which was sold to Apple in 2018 for $400 million while under his leadership.

Talent has flocked to Origin from positions at blue-chip energy companies. Just a few that can be found on LinkedIn are ExxonMobil alumnus Jeremy Bedard, William Gong, who joined from BP Amoco, and Robert Nissen, who was previously at Jacobs.

Insider purchases are another encouraging sign – after all, the only reason for such purchases is a belief the stock price will rise. Just this week, Mr. Riley showed his confidence in Origin with a 40,000 share purchase. Boon Sim, a board director, picked up 50,000 shares and Charles Drucker, another board director, recently acquired 750,000 shares.

Messrs. Sim and Drucker also add serious value to the company in their roles on the board. Mr. Sim has a distinguished career in finance, including a role as Global Head of M&A at First Boston and later had senior roles at Temasek, the highly-respected sovereign wealth fund in his home country of Singapore. Mr. Drucker was recently the CEO of Worldpay, which was acquired by Fidelity National Information Services, Inc. for $35 billion.

Further bolstering governance is a very diverse board, which includes chairman Karen Richardson, who is also on the boards of BP plc, Exponent, Inc. and Doma. Over her career she has served on several other company boards, including Worldpay.

Turning to valuation, Origin looks downright cheap. The company’s enterprise value, adjusted for cash, is only about $280 million, or 1x 2026 forecasted Ebitda.

What’s a fair price? Other innovators such as Tesla trade north of 20x 2026 Ebitda. Another analogue is Finnish biodiesel company Neste Oyj, which makes renewable diesel from waste materials. The stock, listed in Helsinki, once traded for a few Euros but now trades near EUR 50 and has a market capitalization of EUR 37 billion ($43 billion).

Those comparisons suggest the stock could eventually be worth upwards of $100 if the company executes as expected. While that price may seem high, some have made the case Origin is worth even more. In a recent note, Craig-Hallum analyst Eric Stine said his bull case is $107 a share “given the demand outlook and a value proposition, which does not require any change from plastics/materials suppliers or consumers.”

In the 1967 classic The Graduate, lead actor Dustin Hoffman’s character Benjamin Braddock is implored by a family friend: “Just one word. Are you listening? Plastics.” While the formula for the plastic of the future has changed, investors would be wise to take the same advice.

Contact:

John Jannarone, Editor-in-Chief

editor@IPO-Edge.com

www.IPO-Edge.com

Editor@IPO-Edge.com

Twitter: @IPOEdge