Itaconix - Covid 19 driving strong demand for homecare detergents and cleaners
Itaconix (LON:ITX), (OTCQB:ITXXF) has issued a trading update, showing that revenues grew by 42% in the first four months of 2020, continuing the level of growth achieved in FY 2019. The biggest driver has been increased demand for Itaconix’s polymers used in home detergents and cleaners. This market is highly active from the stay-at-home restrictions under the COVID-19 crisis, and Itaconix continues to gain market share.
Itaconix’ proprietary processes create polymers using itaconic acid. This is an organic acid with similar potential use and functionality as acrylic acid. Rather than being derived from petroleum feedstocks like acrylic acid, itaconic acid is produced by large-scale fermentation using corn as a source of sugar.
In dishwasher detergents, these water-soluble polymers are used as an important functional additive, preventing the formation of calcium deposits and improving the performance of the detergent. Using Itaconix’ additives allows detergent manufacturers to replace the need for multiple existing ingredients, leading to advantages in cost and performance as well as environmental benefits. These competitive advantages are evidenced by the expansion of Itaconix’ supply agreement with New Wave Global Services in the North American market (February 2020), and expansion into Europe with first purchase orders in the detergent space during the last year.
Funding position
As of January 2020, we believe that Itaconix was in a strong position to secure additional capital to finance the next phases of the company’s growth. The COVID-19 situation has led to significant disruption in the capital markets.
In the recent news release, Itaconix details a number of actions which have been undertaken in order to extend the company’s cash runway. These include a more than 50% reduction in cash compensation for various categories of executives as well as the non-executive directors. Also, the company has secured US$10k from US government financial relief programmes, with further applications in process. The news release states that without any further funding (including any further funding for US government relief programmes) the company has sufficient working capital to operate until at least the end of August 2020.
Given Itaconix’ strong revenue growth, and exposure to the consumer staples segment, we argue that the company has a strong investment case to secure further financing.
Trading update and funding position
Itaconix polymerisation processes represent a flexible chemistry tool kit which can create polymers for a wide range of applications, analogous to the acrylate polymers market. In addition to dishwasher detergents the company has existing commercial products in the fields of odor control and in personal care (haircare and skincare products), and a product in development in the biodegradable plastics space. Overall, the addressable market for Itaconix polymers extends into the hundreds of millions (US$). We argue that the pipeline of opportunities could sustain revenue growth at strong double-digit pace throughout the next decade, driving substantial upside potential for shareholders.
Beyond detergents