• Canaccord slaps Close the Loop with target price of 65c, well above current price
  • CLG recycles print cartridges and is innovating sustainable packaging
  • The broker believes CLG is undervalued


Canaccord Genuity has slapped a Buy recommendation on Close the Loop (ASX:CLG), with a $0.65 price target (versus current price of $0.36).

CLG is $180m-capped global leader in the circular economy space.

The company, which listed on the ASX in 2021, operates through two primary divisions: Resource Recovery and Packaging, both dedicated to reducing waste and promoting sustainability.

At the core of CLG’s Resource Recovery division is its print cartridge recycling business. This involves the collection, recovery, and reuse of inkjet and toner cartridges.

The company collaborates with 17 of the largest global original equipment manufacturers (OEMs), such as HP, Brother, Epson, Canon, and Fujifilm, managing their cartridge recycling programs.

With a network of 240,000 collection points across key markets like the US, Australia, and Europe, CLG processes around 50 million cartridges annually.

Canaccord believes this extensive network is a major competitive advantage, reducing landfill waste and promoting recycling on a large scale.

The company’s Packaging division (previously OF Packaging Group) on the other hand, specialises in engineering flexible packaging solutions that are environmentally friendly.

This division focuses on creating reusable and recyclable packaging products that meet the increasing demand for sustainable packaging in various industries. By offering alternatives to traditional packaging, CLG helps reduce plastic waste and supports the transition to a circular economy.

Meanwhile, one of CLG’s proprietary products, TonerPlas, is an asphalt additive made from waste toner powder and soft plastics.

Developed in partnership with Downer EDI (ASX:DOW), TonerPlas improves the mechanical properties of asphalt roads, enhancing durability, performance, and energy efficiency.

This product has been used in over 1,000km of Australian roads and is a testament to CLG’s ability to create high-value products from recycled materials.


Current landscape supports CLG’s business

The printer cartridge market, which includes both ink and toner, is currently worth US$14.2 billion, with a segment of US$4 billion specifically for toner cartridges (according to MarketsandMarkets).

Experts anticipate this market will grow at an average annual rate of 6.4% up to 2030.

“We expect CLG can maintain elevated growth against industry trend, based on its established relationships with the top print cartridge OEMs.

“These OEMS control an increasingly large proportion of the market,” said Canaccord.

The flexible packaging market, meanwhile, is a small but expanding part of the overall packaging market worldwide.

It uses materials that aren’t rigid, which allows for more cost-effective and customisable packaging solutions.

Currently, the global market for flexible packaging is valued at around US$249 billion, and it involves using about 32 million tonnes of flexible packaging annually.

Experts predict this market will grow at an average annual rate of 3%, reaching approximately US$292 billion by 2026.

“The Australian Government’s 2025 National Packaging Targets is the most significant regulatory driver, which ensures all packaging available in Australia is designed to be recovered, reused, recycled and reprocessed safely in line with circular economy principles,” said Canaccord.


Why CLG could be undervalued

According to Canaccord, CLG is a profitable and cash-generative business.

In the first half of FY24, the company reported an EBITDA of $22.7 million and upgraded its full-year guidance to $44-46 million.

This positive trend is expected to continue, with forecasted EBITDA reaching $48 million in FY25 and $53 million in FY26.

“We forecast a 3-year revenue CAGR of +23%, which sees revenue increase from $136m in FY23 to $250m in FY26,” said Canaccord.

The acquisition of ISP Tek Services in 2023 expanded CLG’s capabilities into electronic equipment refurbishment, adding a significant growth driver.

CLG also trades at a modest valuation with a forward FY25 P/E ratio of 6.2x and EV/EBITDA of 3.6x. This is significantly lower than its peers, making it an undervalued investment with potential for substantial returns, says Canaccord.

“We suspect these multiples, which we regard as very modest, are a function of the relatively out of favour nature of sustainability-themed stocks in the current environment,” said the note from Canaccord.

“CLG’s positive free cash flows differentiate it from other stocks in the space, many of which are in the early stages of building a revenue base.”

In CLG’s history on the ASX, it has traded at an average P/E ratio of 11x, and an average discount of 28% relative to the S&P/ASX SMALL ORDINARIES INDEX [XSO].

Around March of 2024, that multiple capitulated to trade at the mid-single digit level and has not recovered since.

“In our view, both a comparison of CLG’s trading relative to peers, and its historic trading levels suggests its current 3.9x EBITDA and 6.4x PE undervalues the business,” added Canaccord.

In terms of the risks of investing in the stock, Canaccord warns that CLG could be something of a “black box”.

In Canaccord’s view, with operations in many different verticals and by virtue of the number of acquisitions CLG has made over time, the business is complex for its size.

“As a result, the market may lack early visibility should issues emerge in one or more parts of the business in the future, and this may contribute to the modest valuation metrics which the market attributes to the shares.”





The views, information, or opinions expressed in the interview in this article are solely those of the broker and do not represent the views of Stockhead.

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