French companies don’t get much love in the U.S. investing community.
Here are 2 explosive growth stocks to buy or put on your watchlist.
The US. and Canadian stock markets monopolize the attention of the majority of North American investors.
This makes perfect sense as American companies are among the largest in the world.
Also, European markets often have the reputation of generating subpar returns compared to American and Asian markets.
However, the Old Continent is full of interesting companies that deserve our attention.
Today, I want to present 2 high potential French growth stocks to buy or consider adding on your watchlist.
1. Carbios: Infinite Plastic Recycling
Founded in 2011, Carbios (EPA: ALCRB) is a French biochemistry firm specialized in recycling plastics.
Its corporate presentation claims it is “the first and only company to have developed biological technologies for the end-of-life of plastics and textiles“.
Indeed, its Enzymatic biorecycling technology is capable of recycling PET plastics and fibers to infinity.
The company holds a number of worldwide patents and Evanesto, its core offering, is the first natural enzyme-based additive to fully biodegrade PLA-based plastics.
Here are 5 reasons why Carbios is a compelling investment.
1. Carbio’s offering is perfectly suited to the growing regulatory pressure in Europe
The European Union and member countries are enacting strict laws against single-use plastic:
- 2015: EU Directive for Plastic Bags + EU Action Plan for a Circular Economy
- 2016: Germany’s voluntary agreement regarding reduction of plastic bags
- 2017: France commits to 100% recycled plastics by 2025
- 2018: EU Strategy for Plastic + Target of 50% recycled plastic by 2025 and 55% by 2030
- 2019: EU enacts Single-Use Plastics Directive + UK bans the sale of some single-use plastics
- 2020: France bans single-use plastics straws and cutlery + Germany enacts Single-Use Plastics Law
These developments are very favorable for recycling companies like Carbios.
2. Large corporations are in need of modern recycling services.
Naturally, corporations such as Nestlé and Pepsico are among the hardest hit by these European laws and regulations.
In fact, many have already pledged to increase their use of recycled plastics:
- Pepsico, 2016: “design 100% of its packaging to be recyclable, compostable or biodegradable by 2025“.
- Unilever, 2017: “100% of packaging recyclable, reusable or compostable by 2025 and recycled plastic content to at least 25% by 2025“.
- Nestlé, 2019: “Nestlé Waters will increase the recycled PET content in its bottles to 35% by 2025”
- L’Oréal, 2020: “By 2025, 100% of our plastic packaging will be refillable, reusable recyclable or compostable“.
As a result, they need to find companies capable of recycling large amounts of plastic responsibly.
Companies such as Carbios are poised to benefit from this need.
3. Carbios’ two-pronged business model is compelling.
Carbios’ innovation offers the potential to recycle PET plastics infinitely and contributes to achieving 100% recycled PET content in new products.
However, the business model goes beyond simply recycling plastic.
In fact, it will generate revenues from two main sources:
- Licensing: Upfront revenues from the licensing of PET recycling technology to other firms.
- Selling: Recurring revenues from enzyme sales.
This suggests that Carbios will focus on recycling plastics in the EU region and sell licensing rights in other regions. This makes sense as South America, Africa and Asia are in strong demand of recycling technology to deal with their growing waste problems.
4. Carbios is protecting its intellectual property
When it comes to technological innovation, Intellectual Property is key.
Carbios knows this and is doing everything it can to protect its innovations, products and processes.
At the end of 2020, their portfolio of Intellectual Property is composed of 38 patent families.
One of Carbios’ most important patents is an exclusive global license which includes 158 titles and is submitted in the major global regions and covers their main offerings (biodiversity, enzyme recycling process, production of biodegradable and bioproduction process).
This focus on IP protection is reassuring because it makes it difficult for competitors to steal or replicate the technology.
This IP protection means that Carbios will retain exclusive access to the technology, which will allow it to strike lucrative licensing deals around the world.
5. Carbios has a clear roadmap to commercial success.
Carbios’ corporate thesis and business model are promising on paper.
How does this translate in execution?
For now, Carbios’ revenues are limited by its weak recycling capacities.
In parallel, it expects to earn its first licensing revenues by 2022/2023.
That’s why the company is focused on increasing its industrial output.
On this front, there is good news to report: in May, Carbios completed a €114 million capital raise. This will enable it to pursue its plan to build a state-of-the art recycling facility., which is expected to be completed by 2024.
The 100% PET recycling facility will enable:
- Annual production of 40,000 tons per year.
- Potential saving of 30% CO2 emissions compated to a conventional end of life mix or incineration and landfill.
Conclusion: Will Carbios Fulfill its Promises?
Carbios is an interesting investment for those seeking a novel opportunity.
While still operating under-the-radar company, Carbios’ technology is cutting edge and in high demand.
The investment thesis is certainly compelling but Carbios needs to deliver on its promises:
- First, the licensing deals need to bring in real revenues.
- Second, the PET recycling unit needs to be delivered by 2024.
- Third, the company needs to stay ahead of the curve by refining its technology
- Fourth, it needs to ensure that more established companies don’t copy its technology and propose the same service for cheaper and at greater scale.
VERDICT: BUY THIS STOCK IF YOU BELIEVE THAT INFINITE RECYCLING IS THE FUTURE AND IF CARBIOS CAN DELIVER ON ITS PROMISES.
2. SES Imagotag: Global Leader in Electronic Shelf Labeling
Admittedly, it isn’t 100% French owned.
BOE Technology, its parent company, is a Chinese company that specializes in the manufacturing of LCD displays.
Nevertheless, SES-imagotag is listed on the CAC 40 and is one of the 2 high potential French growth stocks to buy or put on your watchlist.
1. The global leader in electronic shelf labels
You’ve probably never heard of SES Imagotag but it performs a revolutionary service.
Most stores still display product prices the old fashioned way:
- Printing prices on paper and sticking the tags on the shelves
- Adjustable number tag displays
- No prices at all
The problem with these solutions is that they take a lot of time to set up and changing prices is tedious.
SES-imagotag provides a logical yet life-changing solution: electronic shelf labeling and automated pricing.
The software allows the client to customize the label display and update prices in real time. Their cloud platform integrates as an API with various management software to retrieve product data and transmit it to its electronic labels.
A simple infrastructure, composed of a router and POE injectors, is installed in the physical store and the client uses the software to connect products to labels. Once the labels are set up, the client can set and modify prices directly in his management software and regular API calls update the labels’ prices.
Thus, SES-imagotag’s electronic shelf labels enable clients to:
- Connect and digitize their physical points of sales
- Automate low-ROI processes
- Improve operational efficiency
- Inform and serve clients
- Optimize real-time inventory and stock control
- Avoid out of stock items and reduce waste
- Create omnichannel service platform that increases customer loyalty
As mentioned above, the service is simple yet revolutionary.
Thus, it’s no surprise that the company is growing quickly.
2. Business is booming
SES Imagotag latest financial results are simply spectacular:
- Q1 2021 Revenues of €203 million (+70% from Q1 2020)
- €309 million of orders (+87% from 2020)
- Trailing Twelve Months Revenues of €375 million (+53%) and orders of €599 million (+58%)
- Net debt is -1M€ is a very low use of available cash despite the strong growth
- Next objective is reaching €400 million in annual sales and bettering profitability.
These incredible results are explained by the rapid growth in North America:
- Already 2,000+ stores installed in the region
- April 2021: Walmart Canada signs contract to install SES-imagotag’s electronic shelf labels in 328 locations
- 11 clients among the top 50 North American retailers, including 4 of the top 10
As of 2021, the company boasts:
- 230 million electronic shelf labels sold
- 22,000 stores use its labels
- €289 million of total sales
- Presence in 60 countries
SES-imagotag is an inspiring success story who will continue growing rapidly in the coming years.
VERDICT: BUY THIS STOCK TO GAIN EXPOSURE TO THE WORLD LEADER IN ELECTRONIC SHELF LABELING.