What underpins an investing thesis? + We uncover Danimer Scientific (NYSE: DNMR)

Bryce: [00:00:15] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett's status. Our aim is to help break down your barriers from beginning to dividend. If you're joining us for the very first time, welcome and thank you for becoming an Equity Mates. If you're still getting up to speed with the basics, you can check out our Get Started Investing podcast. But let's crack on. My name is Bryce. And as always, I'm joined by my equity buddy, Ren. How are you? 

Alec: [00:00:39] I'm very good. Bryce very excited for this episode. I think we've got a lot to talk about. Your lifestyle creep is becoming more and more noticeable. 

Bryce: [00:00:49] Why? What's happened? 

Alec: [00:00:50] I found out yesterday you haven't been buying glass Tupperware crust. And then. 

Bryce: [00:00:54] This is going to be more of. An indictment on You. Oh. 

Alec: [00:00:59] Lost touch with the common man. 

Bryce: [00:01:00] Right. There are so many reasons that glass Tupperware supersedes plastic. 

Alec: [00:01:06] You know, one reason it doesn't when you drop it in Hyde Park, it smashes and it ruins your lunch. 

Bryce: [00:01:11] This is true. This is true. It was an unintentional drop. But luckily for the Hyde Park birds, those been chickens, they would have had free pickings with glass. My pasta with glass in it.

Alec: [00:01:24] Unlike me, plastic Tupperware could throw it off this building and it Would be fine. 

Bryce: [00:01:28] Yes. For context, I dropped a glass of Tupperware full of lunch in Hyde Park here in Sydney. 

Alec: [00:01:33] And it's just another example of you succumbing to lifestyle creep.

Bryce: [00:01:38] No. I've always had glass type arrests from a young age, so I haven't changed. 

Alec: [00:01:45] Fair enough. Anyway, we're not here to talk about your spending. We're here to talk about your investing. 

Bryce: [00:01:51] Everyone's investing. 

Alec: [00:01:52] We've got a lot to cover today. We've got we're going to talk about investing thesis, theses. Theses 

Bryce: [00:02:00] Theses.

Alec: [00:02:00] Whatever the plural of that is. Bryce has put heading in here in our notes, something that I came across this week. Bullshit or not. Swearing on this? 

Bryce: [00:02:10] That's fine. 

Alec: [00:02:11] And then we're going to dig into our Equity Mates portfolio and Equity Mates uncovered. But to kick us off, Bryce, you've got something which is just titled Feel good? 

Bryce: [00:02:25] Yeah, Feel good. I don't know. I just thought I wanted to start on a positive note, and. 

Alec: [00:02:30] Rather than me talking about tupperware. 

Bryce: [00:02:32] It and Just sort of continue to remind the Equity Mates audience, you at home continue to remind ourselves Ren about the beauty of the industry that we're in. Or I guess about the beauty of investing is that unlike many industries, you don't need a degree or any sort of formal training to reap the rewards just as much as someone who has done years of study and training. And I've been listening to I was listening to a podcast and this is a quote Well, this is from a guy called Morgan Housel, and it's his general thoughts on how to think about finance in finance, investing and behaviour. 

Audio Clip: [00:03:17] Well, I would first say that most of finance, particularly at the academic level, not by everybody, but it tends to be taught like it's math. Like if we just have the right data and the right formula, it'll spit out the right answer and then we're all set. Like, like, like physics works. I just think there's so much evidence, particularly between 2008 and Covid and like during the moments of upheaval, that finance is not. It's not math. Math plays a role, but really just behaviour. It's how people think about greed, fear, risk, uncertainty, social aspirations, keeping up with the Joneses. That's what really makes the biggest difference. You will never find the uneducated country bumpkin that can perform open heart surgery better than a Harvard trained doctor. But if you compare someone who dollar cost averages and index funds to a lot of hedge fund managers that blow up like there's there's not there's not a lot of other fields that are actually like that. And I think because we are taught like it's a math based field, but it's actually just can you keep your head on straight? Can you control your sense of greed and fear and risk? And do you have a proper philosophy around uncertainty? If you have those things, you don't need much more to do better with money. And if you lack those things, no amount of education is going to save you. 

Bryce: [00:04:25] So I just think that's an awesome quote, just to keep reminding yourself that there's nothing overly complicated about building wealth over the long term. What did he say? It's not it's not about maths, it's about behaviour. And if you can just be dedicated, consistent over a long period of time, like you can beat most fund managers. 

Alec: [00:04:43] Yeah, I love it. Yeah, yeah, yeah. 

Bryce: [00:04:46] Anyway, for those wondering who Morgan Housel is, it's worth checking him out. But he I think he's a partner at the Collaborative Fund and is an author and speaks a lot on sort of personal finance and, and building wealth in a very sort of simplistic way. So it's great.

Alec: [00:05:03] Nice. Well, Bryce, I wanted to bring something to table today around investing theses because I also heard something this week. I didn't clip it, but I heard someone. This week say something that made me think. They said every investment thesis boils down to two things. A short term catalyst or a long term trend.

Bryce: [00:05:24] Okay. 

Alec: [00:05:25] It's an interesting one because you think about that and it makes sense. So we can think of examples of both of those things. You know, someone might be investing in Woodside today and they think there's a short term catalyst. Oil price is going to get back above $100. Or people are investing in a company like Ordinate because of the long term trend around like the digitisation of audio or, you know, BHP because of the long term trend in growth of battery minerals. I'm sure there's plenty more we can think of. 

Bryce: [00:06:01] There would be plenty more. Yeah. 

Alec: [00:06:05] And we can even think about it in terms of investors. You know, Warren Buffett is the classic example of like just riding the long term trend. And then there are investors that have made a lot of money from short term catalysts. Bill Ackman probably is the one that comes to mind recently. I would say the MVP of Covid if worth big bets calling such a thing. How he entered and how he exited Covid was pretty amazing. He turned 27 million into 2.6 billion with credit default swaps in early 2020. And then he was really early on the inflation trade sort before the Reserve Bank saw it and surprisingly turned 170 million into 2.7 billion shorting government bonds. And so you can thing, you know, like short term catalyst, long term trend, that that distinction kind of makes sense whenever investing in a company. They're the two reasons. But as I thought more about it, it feels a bit incomplete. It feels like there's a bunch of companies that we probably invest in or that a lot of people are thinking about investing in, which it doesn't quite fit into those two buckets. So I wanted to sort of unpack the idea and talk about why else we would invest in companies or what else would underpin a thesis. So I've got a couple I don't know if any come to mind for you. 

Bryce: [00:07:28] I mean, there's sort of buckets that I think about. I mean, obviously there's. A hard evaluation play. 

Alec: [00:07:35] But I think that I think the point with valuation is like valuation in and of itself isn't an investment thesis because like something can be valued and can continue to be undervalued. How, when? How does the market realise its value? And this guy was saying short term catalyst or long term trend. 

Bryce: [00:07:53] I disagree. Like people are looking for like just general mispricing. That is the thesis. Like I think short term catalyst or long term pricing like or long term trend under both of those like heaps of stuff is going to fit. What I'm saying is I think like that, I think that, I think people do invest purely based on valuation. 

Alec: [00:08:13] But is that sensible? Like the last decade we've seen value value investors just get taken to the cleaners trying to invest in take value. 

Bryce: [00:08:22] The question wasn't what is a sensible thesis? 

Alec: [00:08:26] All right, zero. Underpinning everything we talk about is sensible. 

Bryce: [00:08:31] I mean, there's there has been times in history where it's been sensible. I think that like we have spoken, as you said, we've spoken to people who like date value, like, I am just looking for something here that. 

Alec: [00:08:43] Yeah, but that strategy hasn't done too well over the past decade. 

Bryce: [00:08:48] No. Yeah. But then similarly, like, I think and this probably falls under short term catalysts I guess, but like there's thesis around if you're talking financials companies that just continually outperform guidance and continuingly like revenue drives stock performance. And so like from a financial point of view, there's a thesis that you just you're just investing basically based on that. 

Alec: [00:09:10] Yeah. So that probably leads to too, because I was thinking about like what are the and I was like looking at my portfolio and I was thinking, what are some of the other reasons that I would invest in a company outside of short term catalyst, the long term thesis. And to be honest, there's not a lot of short term catalyst plays in my portfolio. The next one that I had was exceptional management, and sometimes there's no long term trend of companies riding, sometimes there's no short term catalyst that's coming up. Sometimes it's just a great entrepreneur or a great leader building in a tough industry. And the classic example in Australia, I don't know in this one, but Nick Scali. Like, who would have thought furniture. 

Bryce: [00:09:50] Yeah, but I mean, the argument could be that the long term trend is the type of furniture that he was doing at the prices that he was doing it at. 

Alec: [00:09:57] I guess like, I guess so.

Bryce: [00:09:59] Like he's just he's an exceptional entrepreneur who has identified that. 

Alec: [00:10:04] Okay. Well, what about this Domino's Pizza? No pizza shop should have been able to become this dominant in Australia and globally. It shouldn't have. Like the reason it emerged as it did wasn't some long term trend about pizza consumption or technology used to cook pizza. It was done mayonnaise time. 

Bryce: [00:10:22] Yeah, I don't know the long term trends of pizza. 

Alec: [00:10:26] So I reckon it's fair to say exceptional management is. 

Bryce: [00:10:29] What are you saying at the exclusion of anything else? 

Alec: [00:10:33] Sometimes, yeah. 

Bryce: [00:10:34] Interesting. 

Alec: [00:10:37] And then the fourth one that I was going to throw out was just sometimes sustainable competitive advantage. Sometimes you're not riding a trend, sometimes with no catalyst. Sometimes a management team is, but your business is just that good. And like the classic example for me is the ASX. Like maybe there's a long term trend in terms of more retail investors, but the trend, the long term trend is actually companies leaving the stock market like we have less listed companies and we did 20 years ago. Management didn't cover itself in glory with this chess replacement project and blockchain CEO recently left no short term catalyst, but it's just like the moat is so powerful. 

Bryce: [00:11:23] Yeah, that makes total sense. Yeah. Yeah. I mean, you would say now companies that you're used as examples for Warren Buffett like Coca-Cola and these maybe not MasterCard and stuff because there's different trends there, but like some of the massive FMCG companies are probably just more that than huge tailwinds of. 

Alec: [00:11:46] Yeah, that's changing. 

Bryce: [00:11:48] The demand and blah blah, blah. Like these companies. Yes, they're appealing to like what, no sugar and various bits and pieces. But the crux of the business is, is just so defensible. Their brand is so strong that to take down coke is. 

Alec: [00:12:02] Yeah. 

Bryce: [00:12:03] Very complicated. 

Alec: [00:12:03] I think you'd probably say the long term trend that Coke rode was the globalisation trend. Like Coke went from a western product to a product that you can literally buy probably in every country in the world. But yeah, so for me it's like they're the for I couldn't think of anything more short term catalyst, long term trend, exceptional management, sustainable competitive advantage. 

Bryce: [00:12:25] Well you know that I talk about my checklist. So I think and these aren't like as individual as those but like things that. I think about when individual investing in individual stocks. So definitely financials like you don't want a company that it might have exceptional management, but what if it's I guess it wouldn't have exceptional if it's just like failing on everything. 

Alec: [00:12:50] No no. So, so okay, so there's like, it's like you have to know the company. Yeah. You have to be comfortable with the company's financials, like the unit economics of their business have to be good. Like there's all the, like, table stakes stuff that you, that you do. Yeah. Then it's like, is the share price that it's currently trading at good value. But then it's like, why am I buying it? And that's, that's these things. What's underpinning? Like what's the why? 

Bryce: [00:13:14] Yeah, yeah. Makes sense.There'd be nothing more add. 

Alec: [00:13:18] wouldn't that. 

Bryce: [00:13:19] No. Because everything else that I was going to say, it goes into the before you get to the why. Nice wall out of those four. What do you think you'd just by default, do you feel like most of your investments fallen? 

Alec: [00:13:33] Great question. I think probably the last one. Sustainable competitive advantage. If I had to just choose one, it would be exceptional management. I reckon if you put these four strategies up against each other, the founder led businesses that list and just keep growing are the ones that are great and obviously those ones that fit into all four. Amazon was long term trend, exceptional management, sustainable competitive advantage. My biggest individual holding would be alphabet. I think that's. 

Bryce: [00:14:05] Comes a few of them. 

Alec: [00:14:06] Yeah. Well does it like not really any short term catalyst unless is going to nail chart jeopardise rival exceptional management. I don't think you can say that about Apple anymore. I mean Alphabet any more long term trend like it rode the search trend. It's right in cloud but yeah. 

Bryce: [00:14:25] I think it's a lot of investments, a lot of companies beneath it that are very much long term trend. 

Alec: [00:14:32] But yeah sustainable competitive advantage for me is the one that stands out like that's why I buy it because as much as you think it's is coming for search, I don't. 

Bryce: [00:14:41] Yeah. Well we will soon find out anyway. It's, yeah. It's interesting to think about. 

Alec: [00:14:46] And I think just to close it out, I think that's why there are some companies that often spoke about on this podcast in investing circles that I just don't really get excited by it. And like the classic one for me would be Qantas because it's often spoken about being undervalued as like reflecting on some of these companies and that's why they don't really take any of these boxes.

Bryce: [00:15:10] Qantas. Management. 

Alec: [00:15:12] Yeah. Alan Joyce. 

Bryce: [00:15:13] Taking off. Yeah, yeah. I mean I think you could argue well you wouldn't have to argue he's considered one of the best. Yeah. Executives in Australia. 

Alec: [00:15:23] Yeah, yeah, yeah. 

Bryce: [00:15:25] But so I think, so I think he would fall under, under management. But anyway it's a good catalyst to the next segment that I wanted to chat about ran something that I came across this week in terms of short term catalysts. So before we jump into it, we're just going to take a very quick break to hear from our sponsors. All right. So you spoke about short term catalysts there. And I came across this actually through one of the interviews that I was doing for an episode that will be coming up in the next couple of weeks on investing psychology. It's about market activity, and this is very technical analysis, but it's just interesting to see how people use charts to inform investment decisions. And this is why I kind of had the title in there bullshit or not, because you can make whatever you want from charts. Yeah. And it becomes very a massive cognitive bias in terms of anchoring to kind of what you want to say. Yes, that makes sense. But you might find this interesting. You're a bit of a US politics buff. There's a unique pattern that occurs on the midterm cycle. So midterm elections happen every four years. Yeah. If you look at the charts over the last 40 years of the American S&P midterms acts like a bit of a vacuum pulling markets down in the middle of to the late months of the year of the midterm. So the deepest lows happen every four years between June and October of that midterm year. And then you find that the corresponding sort of 14 months is statistically a really positive, almost bull market action. Now, I'll show you the charts and I'll put it in the Facebook group as well so people can have a look. But it's quite compelling, I guess, to see that every four years in that late part of the midterm year. And last year was a midterm year. 

Alec: [00:17:17] Yeah, 2022. 

Bryce: [00:17:18] 2022 was a midterm year. You then see the markets run before sort of getting pulled back down four years later in that midterm cycle. Now, again, you can put lines in charts and say that this happens wherever you want and make sort of assessments and judgements. But I just did find it interesting because the comment from this, from the expert that we had was it's happening again. And he feels that this year you're going to see something no different. 

Alec: [00:17:48] So he reckons we're in for a bull market. 

Bryce: [00:17:50] He reckons we're going to see a pretty positive and strong S&P 500 this year based on the facts that we had the midterms last year. 

Alec: [00:17:58] I'm just trying to think so. The big market crashes 1987, not a midterm year, 2001, not a midterm year, 2008. Not a midterm year 2020, Not a midterm year. Are we sure that this is right? 

Bryce: [00:18:14] Well, I don't think he's I don't think he was saying that all crashes come in the midterm years. Okay. But it's just like on the four year cycle, you can see that the market gets dragged down to that low point in the late, late, later part of the midterm year crash or not, it gets dragged down and then you start to see it bounce again. And then within those four years, it could go it could peak and then crash again, and then the bottom comes. 

Alec: [00:18:41] But the JF say the market bottomed in mid to late 2009 and then started running from that into 2010, which was a mid-term year. 

Bryce: [00:18:51] Yeah. As I said. You can make anything from charts, you can make anything from charts and this is why I question the bullshit or not. 

Alec: [00:19:02] And look, I'm just going to say I'm not going to add. Is it a midterm year as a fifth criteria for my investment thesis? 

Bryce: [00:19:10] Short term catalysts, short term catalysts.

Alec: [00:19:12] Through short term kind of long term trend if everytime. Yeah 

Bryce: [00:19:18] Double whammy. Anyway, let's talk about something more serious. If you were going to if you're interested, I will put up those charts in the form and our Facebook group. So make sure you're part of the community that will have a look.

Alec: [00:19:33] More importantly, if we're wrong, come and tell us in the Facebook group. Well, if I'm wrong, I feel like you. Yeah. 

Bryce: [00:19:40] I don't really care. I'm not going to invest on this. All right. It's time to chat and portfolio and uncovered. But let's start with a portfolio. We brought it back. We dusted it off last week. If you haven't listened to it, go back and listen to it. All this is Ren and I attempting to chat about some of the stocks that are of interest to us and track them, see how they go. We already had people asking where the link is to it. We don't have a link. It's not on our website yet. It will be that. It will be. So just stay tuned. 

Alec: [00:20:10] We're asking ChatGPT for the code. Yes, we'll it'll be out there soon. Right now, Bryce Before we speak about the Equity Mates portfolio, it's important to stress that this is just us collecting the stocks we speak about and the experts we interview speak about. It is not investment advice. We're not aware of your personal circumstances or risk tolerance. But with that, let's get to the stock that you pitched. Airbnb. You must be feeling pretty good. It's up 9% in the past month. 

Bryce: [00:20:38] That's why they call me the portfolio king. 

Alec: [00:20:41] Well, then short term catalyst, long term trend, exceptional management or sustainable competitor advantage. 

Bryce: [00:20:46] It's got oh, it would take a box, a small box in competitive advantage, I think. 

Alec: [00:20:53] Massive box, I reckon. Yeah. 

Bryce: [00:20:54] I would also say that it's got long term tailwinds. I'm not so sold on exceptional management. 

Alec: [00:21:03] Really. I'm pretty solid on exceptional management. 

Bryce: [00:21:05] Yeah, I don't know enough about them. 

Alec: [00:21:07] Brian Chesky Yeah, and um. 

Bryce: [00:21:09] I mean amazing story. Yes. Yeah, but I'd probably go with those two and short term tailwinds that was off of my pitch last, last, last week was this massive return still of bent pent up demand from, from Covid and people getting out there and travel. So again, we're not going to add too much to Airbnb, the thesis, but we have had a some commentary come in from the Equity Mates community, which is great and if you do want to contribute to the conversation, hit us up at Contact@equitymates.com or via our social channels. But this is coming from Jen and she just wanted to add a little bit of colour to the pitch last week and probably some facts and figures that we didn't discuss when considering Airbnb. So she's a former Airbnb host and was scared off a little bit. And I said last week that one of the big sort of drivers of my thesis was a lot of they're really pushing for hosts to come up to come on because you need obviously supply and demand on both sides of the marketplace. But she said that the regulatory environment was rather challenging and by this she meant taxation. She's she was not a she's not sure that all hosts are aware that their income is taxable the same as any rental income. Well, that totally makes sense. And that by opening their homes to guests, they also become liable to capital gains tax, albeit provided with no access to the six year rule exemption. I think that means for the house itself. 

Alec: [00:22:28] Yeah, because your family home is capital gains exempt. 

Bryce: [00:22:32] And so by opening it up, it's treated as an investment. I guess. So that is something certainly to look into if you're thinking about becoming a host. Furthermore, she says very few insurance companies will provide home insurance for Airbnb hosts. She only knows of two in Australia, and local councils are also cracking down and introducing limits on hosting. So I mean, yeah, a few just things to consider and could to really, I mean if you were to do a serious due diligence on Airbnb and go both sides of the marketplace, these are definitely the things to consider around the likelihood of hosts coming onto the platform. 

Alec: [00:23:07] But I guess the fact of the matter is they've scaled their hosts with all of this in mind. I actually think there's another risk for hosting numbers that we didn't speak about in the last episode, which is the the whole host economy thrives on the short term, very long term differential. And what I mean by that is if you own a house, you have the option to just rent it out long term, 12 months, whatever. But the reason that so many people opt to do Airbnb instead is because by doing short term rentals, they make more money and that works for Airbnb. As long as that gap, whatever that gap is, is worth the extra effort and the cleaning costs and or dealing with short term bookings and all of that stuff as rents just skyrocket in Australia, there's an open question about what happens to that gap. Does that gap close? And do people who own houses say, Ah, well the gap has closed enough that it's just I should just rent it out, it's not worth it. Yeah, and obviously that's quite an Australian example and this is a very global company, but that's just an interesting one to think about. Yeah, yeah. Unlike Airbnb, you know, they're facing cost pressures on the or pricing pressure on the customers side. You know, everyone's up in arms about cleaning fees and service fees and all of that stuff. There's means going around saying it's cheaper to book a hotel. So like if they're facing pricing pressure on that side, will they be able to keep the gap? The Host Yeah. 

Bryce: [00:24:41] Yeah. So we'll keep a close eye on Airbnb once it's in the portfolio. Doesn't mean it's always going to stay in the portfolio. That's the beauty of running a portfolio. 

Alec: [00:24:49] So yeah, when. Yeah. Sure. 

Bryce: [00:24:53] Yes. Anyway, let's move on. Final segment Equity Mates uncovered. If you haven't heard of Uncovered before, we launched it a couple of weeks ago on Equity Mates Investing and in our weekly thought starters email that goes out every Monday, make sure you subscribe to that to get more uncovered content. But you and I, there are so many unloved companies out there that have great stories to share that don't get covered enough by analysts in the big end of town and just sort of sit at the bottom of the pile, but we think deserve some light to be shined on. 

Alec: [00:25:24] Yeah, we believe that every company is interesting. Every company is a collection of people that are working really hard to bring something to market or to solve some problem. And so many of them get no attention. But all of these people could be doing other things with their lives and they're choosing to do this and they're choosing to do it because it's hard or it's valuable or it's interesting and. So we've covered a few companies so far. We did abalone farming off the Western Australian coast, then we did AI chat bots. Yeah, This week we're doing the next generation of plastic. 

Bryce: [00:26:00] That's it. So for Equity Mates uncovered, we're looking at Danimer Scientific. 

Alec: [00:26:07] I was thinking of Danimer. 

Bryce: [00:26:09] Danimer, Danimer. It's the same Thing you. D-A-N-I-M-E-R you listening at home and you decide if it's Danimer.

Alec: [00:26:19] We will not be doing. 

Bryce: [00:26:20] Scientific, not scientific. 

Alec: [00:26:25] And for those who don't want to deal with our pronunciations, the New York Stock Exchange ticker is D-N-M-R. 

Bryce: [00:26:32] Nice listed overseas. 

Alec: [00:26:33] Yeah. Yeah. Uncovered global. 

Bryce: [00:26:36] That's it. 

Alec: [00:26:36] So the the thinking here really started with the Ohio train derailment. I'm pretty sure everyone can remember the images of those those flames in the in the sky five of the rail cars that derailed and we're releasing gas we're carrying vinyl chloride now vinyl chloride probably doesn't ring a bell. Does polyvinyl chloride ring a bell? 

Bryce: [00:26:59] PVC

Alec: [00:27:00] PVC. 

Bryce: [00:27:01] PVC Pipes. 

Alec: [00:27:01] So they say one of the most common types of plastic are vinyl chloride, a key component in making PVCq the gas is the gas is extremely flammable and carcinogenic, but it's a key input into the plastic making process and the vinyl chloride rabbit hole is quite deep and probably not a rabbit hole. We want to go down to far in this episode, but suffice to say it's a rabbit hole that people can go down themselves in the ride up for this that will publish on our website will include a little bit. We'll include some links if people want to go down, but suffice to say vinyl chloride not right. Okay. Even when it's not spilling from a railcar, even when it's just used in the production process for plastics, it's quite carcinogenic. And people who live near these plastic producing facilities, especially in the south of the US, where a lot of this is produced, have a lot of health consequences. So the question is, are there any alternatives to petrochemical based plastic? And that's where bioplastics come into play. 

Bryce: [00:28:07] So yeah, bioplastics Ren, it's in the name made from animal and plants rather than what most plastics are made from, which is oil and petrochemicals. And there are a number of companies working on bioplastics. You've got the agribusiness giant. Okay, his pronunciation is going to come in as well. Agri business giant Bunge. 

Alec: [00:28:28] That's how I thought. 

Bryce: [00:28:29] Of Bunge. New York Stock Ticker is B-G. You've got the big oil majors, Chevron. The ticker is CVX, Mitsubishi Chemical in Japan, and then BASF Basf's in Europe, which is the largest chemical producer in the world. So whilst they are all chemical producers, oil producers, they do have an arm that is looking at bioplastics. They recognise where the world is going. But when it comes to pure play bioplastic companies, there are a few listed. You've got Secos group in Australia. The ticker is S-E-S. But this is where our uncovered comes into play. We decided to have a look and uncover Danimer Scientific listed over in the States. D-N-M-R.

Alec: [00:29:13] We could have also uncovered Secos. Uncovered pronunciation. But yeah, this down on a scientific is a pretty fascinating example. And it looks like they're working with some pretty big companies, which we'll get to. So that's one we decided to focus on. So a little bit about the company. They produce bioplastics using microorganisms, they feed them plant oils and use them to create polyester. Over the journey. They make container coffee cups which use plastic like bioplastic rather than plastic for the inner lining of your coffee. Yeah. Yeah. They make that from corn. This one made me laugh. In 2010, they received a grant to develop an environmentally friendly fracking technique for oil. 

Bryce: [00:30:09] Yeah. Yeah. Good luck, guys. 

Alec: [00:30:10] I'm not sure how successful they were that, but I was looking at some of their products now, and, you know, they partner with companies to make things like 100% biodegradable dental floss. They make barrier coating for paper and board products. So that's what keeps your coffee cup waterproof. Yeah, stuff like that about a bunch of different plastic replacement products. Essentially. 

Bryce: [00:30:36] This Remind. So let's go right back to the start of the episode very quickly before we have a look at the financials. Long term tailwind. Short term catalyst. Excellent. Achievement or moat? What are we looking at here? 

Alec: [00:30:50] Definitely just long term trends. So bioplastics are less than 1% of the total plastics market, and that doesn't surprise anyone, I think. And the question is, can they become majority? Can they get it to take a foothold later? And long term trend is also there's a long term regulatory and consumer trend that's a real tailwind for them, you know, banning single use plastics in Europe, in the States, I mean in Australia, you know, just general consumer sentiment and backlash. Massive question about this market though, because there are so many companies trying to get into it and it's like first of all, a technology question, can you produce a bioplastic that is the equivalent of plastic? Yeah. Like from a yeah, use case point of view. Yeah. Second question, can you do it at scale? Can you actually satisfy the world's plastic? And then third question, can you do it cost effectively? And I think anyone is in a position to take any of those boxes, let alone all three. Hmm.

Bryce: [00:32:01] Pretty fascinating, but definitely a long term tailwind. But let's have a look at the financials. We pulled these numbers from our favourite. I guess data's terminal and it's not Bloomberg, it's TIKR. 

Alec: [00:32:15] TIKR, Bloomberg, $20,000 a year. TIKR, generally $180 a year. [00:32:20][5.1]

Bryce: [00:32:21] Yeah. 

Alec: [00:32:21] But with our discount code for the month of March 15% off. 

Bryce: [00:32:26] Yeah. The platform is designed to provide us with institutional grade research on public equities. It is phenomenal to get information on companies and as Ren said, 15% off for the month of May, specifically for Equity Mates audience for the month of March for the month of March, if you use the code Mates15 and go via the link in our show notes, you'll get 15% off an annual subscription. It is an awesome terminal, but let's have a look at data. A market cap of $235 million. The share price trend has been beaten, though it's down 42% in the past year, down 76% in the past five years. However, revenue has been growing at a nice clip over the last three years, 2019, it did 32 million in revenue, 2022, that was up 46% to $47 million in revenue. In 2022, it was up 24% to $59 million. Bit of a softer side, though, 2022. 

Alec: [00:33:24] Yeah, and the most recent quarter that we have data on Q3 2022, they did $10.4 million in sales. Compare that to Q3 2021, they did 13.4. So they are down a bit in 2022. Important to note, as so many of these uncovered companies are Danimer is not profitable. They lost $60 million in 2021 off $59 million in revenue. So about $120 million cost base there. We had a look at their balance sheet again on TIKR $296 million in cash on the balance sheet and about another $20 million in receivables. So based if they continue losing 60 million a year, they've got, what, a five year runway? So that's enough time to get some bioplastics into the market. 

Bryce: [00:34:14] That's it. But a key consideration with these sorts of companies is what they're pouring into R&D, because as you said, Ren, it's a difficult one to to solve and they put a huge amount into R&D as a portion of total sales. 4.1 million in Q3 went into R&D out of 10.4 million in sales. So fair chunk going into R&D. 

Alec: [00:34:34] Now, as we said, the big question when it comes to a company like this, any company trying to bring a new technology to market, can you convince big buyers of your product to partner with you and to, I guess, give you a chance? And this is why we chose to look at Denmark over some of the other companies in this space, because it does seem like they're partnering with a lot of big companies. It's important to note that PE companies will do so many of these partnerships almost as R&D. You know, like in many ways, having a partnership doesn't indicate a lot. It's like having a long term, like converting that into a sales relationship means something because big companies always want to keep their finger on what's going on and want to partner with new and emerging companies and just test and learn. But there is a meaningful list here. So Dan, Emma, a lot of the IP they bought from Procter and Gamble back in 2007, in 2016, they signed a R&D agreement with Pepsi to really look at snack food packaging, 2018 Pepsi then actually invested in the company. So Pepsi part owns some of that company. So, I mean, that's. A compelling sign, I guess. In 2018, they also signed an R&D agreement with Nestlé looking at water bottles, labels and bottle caps. In 2020, they signed a partnership with Bacardi to produce 100% biodegradable spirits bottles. And then in 2021, they signed a partnership with Mars Wrigley to develop home compostable packaging. So you can see some of the big FMCG companies partnering with them. Looking at this space. There's obviously a lot of pressure on those companies to improve the amount of plastics they're putting into the world. Alongside that, a lot of the large retailers, especially in the US, actually solely in the US, are partnering with them. Again, testing and learning. Target in the US, Walmart, Sam's Club, CVS, Dunkin Doughnuts. Starbucks. Costco. 

Bryce: [00:36:39] Some big names. 

Alec: [00:36:40] The big guys. 

Bryce: [00:36:41] Yeah. So making moves. If you're interested in finding out more information about Danimer and rating the the right the write up in full it'll be on our website. Similarly we will send continue sending out uncovered companies in our weekly thought starters email on a monday. So make sure you are signed up to that as well. You'll find information on how to do that on our website. Final thoughts, Ren. 

Alec: [00:37:07] I think, you know, as we said earlier, I like bioplastics, is so unproven. There's so many reasons why it makes sense, but it only really makes sense if you can do it at scale and at a cost. Competitive. Right. And the reasons that bioplastics made sense are the reasons I made sense ten years ago and 20 years ago. And the plastics industry is so powerful, so entrenched. Punting on this industry is a spec. Yes. 

Bryce: [00:37:37] But if you're interested, find out more on the website. Now, we've covered plenty of ground. Don't forget the TIKR sales. So that's TIKR link will be in the show notes for access to the TIKR terminal mates. 15 is the code for 15% off an annual subscription. If you'd like to contribute an idea to the portfolio or if you'd like us to uncover a small cap stock both here in Australia or overseas, hit us up at contact@equitymates.com or on our social channels. And if you'd like to see the crazy charts that we were talking about and the midterm election cycle, have a look at our Facebook group. We'll make sure we post in there. And finally, if you could leave a five star review for us on Apple or on Spotify, that would be greatly appreciated. We love hearing your feedback and it helps us get in front of new listeners. All right, Ren. Well, two massive episodes coming up this Thursday. We're doing a deep dive on floor and decor and MasterCard with Nathan Bell from Invest Smart. And then the following Monday, while we're excited, we have a new concept that we're launching alongside editor cleverly called Is There Money in Dot, dot, Dot And we're exploring whether or not there is money in a topic that we just randomly choose. And so Ed is kicking it off with, Is there money in a song? And we're having a look at how people are now making money from what is it called.

Alec: [00:38:55] Interpolate. 

Bryce: [00:38:56] Interpolating songs on Tik Tok and all sorts of weird and wonderful things. It's an epic episode, so make sure you tune in next week when we launch that, but otherwise Ren we'll pick it up on Thursday. 

Alec: [00:39:06] It sounds good.