Biome Technologies' (LON:BIOM) planned sale of its Biotec joint venture will provide the company with £5.2 million of non-dilutive financing to help it progress its UK- based bioplastics business, says broker Daniel Stewart.
The disposal will also remove the firm's exposure to the low-margin bioplastic bag market and to long running litigation, which has so far cost Biotec £4 million in costs, points out analyst Edward Hugo.
The broker rates the stock a 'buy' targeting a price of 0.18 pence, which represents 100 per cent upside from the current price of 0.09 pence.
Earlier this month, the firm agreed the £5.2 million deal to sell its 50 per cent stake in the Biotec resins business to Sphere, the company that owns the other half of the operation.
The focus of production on plastic bags meant Biotec was a low margin, high overhead business, which was at the mercy of delays and roll-backs on green legislation.
Hugo points out that the deal gives the firm working capital and the migration of products to alternative sites for manufacture.
"Alongside plastic bags, the Biotec facility also manufactures some of BIOMs UK -developed products," he says.
The analyst said that should the transaction complete, BIOM will use some of the proceeds as capital investment for the production of all UK-developed products at alternative facilities.
Biome is also considering the potential return of funds to shareholders, should there be an excess of funds required for the medium term strategy, he says.