The Green Seal Of Approval

This story features SECOS GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: SES

Four small caps companies working on solutions for a greener world

By Tim Boreham

While the climate change debate has dominated the headlines – and will increasingly do so under a greener Biden administration – coping with the detritus produced from our rampant consumerism arguably is just as urgent.

The problem of waste plastic was highlighted by last year’s decisions by Chinese authorities to turn back our cargoes of recyclable material – well before they shunned our lobsters and fine wine.

So if we can’t even deal with the recyclable material, how do we cope with the non-reusable stuff?

On a bright note, a number of small-cap ASX stocks are working on solutions that have the potential to change the world.

Put another way: they have the Greta Thunberg seal of approval.

We hasten to add that most of the companies have a long way to go before their technologies are proven to be commercial and most have been virus-affected to an extent.

Secos Group ((SES))

The Melbourne based Secos is in the right place and the right time as more countries – and companies – move to ban single-use plastic bags.

Supermarket bags aren’t the Devil per se, but the 500m-1tn produced annually are used for an average 12 minutes. So bagging the bags is a good place to start.

As Secos notes, reverting to paper bags isn’t exactly a solution as up to 480m trees would need to be lopped annually.

Readers who suspect the next line is about Secos having just the right solution are spot on.

The company produces resins, films and other products derived from starches, which are fully compostable.

Secos already has manufacturing plants in China and Malaysia and blue-chip clients including Woolworths, for which it makes the MyEcoBag product lines.

The $80m market cap Secos stands above its ASX exemplars because it generates meaningful revenue: just over $21m in 2019-2020, sourced from geographies including North and South East Asia and The Americas.

A reported loss of $1.1m improved on the previous deficit of $4.17m.

At its AGM last month Secos reported (first) September quarter revenue of $5.8m (up 35 per cent year on year) and forecast second-quarter revenue of $7.3-7.8m.

Secos has no debt and as at the end of September had a $16m cash balance, having recently raised $15m in a placement.

Secos patented know-how with its biopolymer wonders but at its heart the core ‘technology’ is not new at all.

“The world is changing or maybe just going back to the future with composting being the oldest method of organic waste disposal,” executive chair Richard Tegoni said.

Nanollose ((NC6))

Most folk would be unaware that producing rayon for use in clothing and other textiles requires about 150m trees to be felled annually.

Cotton’s not the answer either, because it’s a water and pesticide-intensive crop. Polyester, nylon and acrylics are produced from petrochemicals.

The Perth-based Nanollose has devised a fermentation process to convert plant-based materials to woven and non-woven fibres for use in clothing and other applications such as disposable wipes.

The process involves microbes (bacteria) naturally fermenting liquid waste from effluents and food industry by-products into cellulose, the basis of most textiles.

Initially, the company is targeting the $23 billion a year rayon market, but along the way it’s made a wee diversion by investing $200,000 in a filtration company called CelluAir. Based on nanocellulose, CelluAir’s technology is relevant for applications including – you guessed it – face masks.

This topical diversion aside, Nanollose’s key product is a viscose-rayon fibre called Nullarbor, derived from waste from the agricultural, food and beverage industries.

The company has struck a collaboration deal with India’s Grasim Industries, a global rayon producer and an arm of the Aditya Birla conglomerate. It also has an exclusive tie-up with Europe’s Codi Group, which makes seven billion personal wipes a year.

The process was discovered by chance by winemaker and agricultural scientist Gary Cass, who observed that a bad batch of wine had fermented and dried into a leather-like material.

The $6m market cap Nanollose potentially is in the right place at the right time, given fashion brands including Zara and H&M have pledged to use only sustainable materials by the end of the next decade.

Prada has also taken out a $65m loan which involves meeting sustainability benchmarks, so maybe the Devil isn’t wearing its apparel after all.

Meanwhile, CEO Alf Germano has resigned for personal reasons, having led the company since 2017.

Integrated Green Energy Solutions ((IGE)) 

Based on the know-how of a Gympie engineer, Integrated Green Energy Solutions (IGES) claims a plastics-to-fuel conversion technique that is more efficient than the current commonly-used methods.

The key advantage of the process is that it can use many forms of plastic that are not otherwise recyclable (items such as pens and coat hangers are fine).

The process, called pyrolysis, involves heating (not burning) the plastic to 400 degrees in the absence of oxygen and converting it to oil.

While pyrolysis is not new, the output is used for heating oil or as a blending stock. IGES directly converts the material to ready-for-use diesel or petrol.

The IGES process overcomes the problem of fillers in the plastic products that create a glue-like gum, which causes havoc in the piping of the machinery. Instead, the clag (and other impurities) fall to the bottom of the kiln.

On management’s admission, the coronavirus means the company is in an “enforced period of hibernation”, but remains confident that previous third party funding arrangements for planned plants in Amsterdam, Northampton in the UK and Thailand remain intact.

At last glance, the $54m market cap company had cash of $2.56m and access to $9.2m of loans from 26 related and non-related parties.

Leaf Resources ((LER))

Chaired by former Nufarm chief Doug Rathbone, Leaf strives to commercialise a technology that uses waste biomass to produce green chemicals, bio-plastics and renewable fuels.

Leaf’s process, called Glycell, replaces the petrochemicals that are currently used to produce industrial carbohydrates (sugars) and lignin.

One such product is polylactic acid, which is integral to making biodegradable plastics.

But with the virus stalling Leaf’s plans for processing plants in Queensland and Malaysia, the company instead has acquired a private mob called Essential Queensland, which extracts resins and hydrocarbons from pine logs for use in the industries including perfume, food additives and disinfectants.

Leaf shareholders last week approved the scrip acquisition – which implies a circa $20m purchase price – and the company is now embarking on a $3m raising.

Essential Queensland has built a 4000 tonnes per annum processing plant at Isis Central near Bundaberg and is scaling up to an 8000-tonne commercial plant that should operate by next April.

Leaf previously had selected a Malaysian site for a Glycell plant and was eyeing a Queensland bio-refinery, but the pandemic means both projects are now deemed “immaterial for the time being.”

The market currently values Leaf at less than $7m.

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