Industry tailwinds spur bioplastics manufacturer into top line growth

Undeterred by volatile markets and a slew of disruptive global events, an ASX top-100 performer expected to wrap up FY22 with a moderate top line growth for the full year.

SECOS Group (ASX: SES) manufactures a variety of eco-friendly plastics ranging from lower carbon footprint biodegradable to 100% certified compostable, primarily using a corn-starch based technology.

K2 Asset Management’s Stephen Scott and Armytage Private’s Lee laFrate chose SECOS as one of their favourite stocks on our Meet the Fund Manager sessions in April and July 2021 respectively.

While Mr Scott cited the company’s then-cashed-up balance sheet, Mr laFrate recounted when Armytage bought into SECOS at $0.04 when its market capitalisation was ~$8 million.

In the years that followed, Mr laFrate saw the company’s market capitalisation grow to ~$175 million, saying “SECOS is a remarkable success for Armytage”.

Noting separately the company’s initial ‘unloved’ and more recent ‘prime time’ phases, both fundies agreed on government and consumer tailwinds driving SECOS’s growth.

Speaking to Reach Markets at our Meet the CEOs event, SECOS group executive chairman Richard Tegoni said: “It’s more than just an environmental issue, it’s a health issue.”

“One of the more notable impacts plastics has on the world is that it produces microplastics which degrade over time and get consumed by fish and find their way into the soil.”

Mr Tegoni has worked with SECOS for more than 10 years, noting that the past two years have ramped up due to global market sentiments in a multi-trillion-dollar plastic industry.

“The issue of sustainability has become so front of mind, we’ve been developing the business with a global footprint and manufacturing assets capable of producing up to $60 million in revenue.”

SECOS focuses on producing flexible plastics, which are used in bags, nappies, medical gowns and hygiene products and, as stated by the CEO, are more difficult to recycle.

“The solutions that we are offering very successfully in the market revolve around flexible plastics,” he said, highlighting the company’s MyEcoBag brand of compostable bags.

MyEcoBagⓇ was the fastest-growing compostable bag range in Woolworths for 2020-21, comprising over 40% of the supermarket’s total compostable rubbish bag sales.

Mr Tegoni believes SECOS’s competitive advantage lies in its fully integrated process supported by patented technology, large manufacturing capacity and access to raw materials.

The company is already expanding into the US, an addressable market SECOS believes is about nine times larger than Australia’s in terms of store numbers and total revenue.

SECOS has invested in a global research and development centre of excellence, working with universities and corporations worldwide to develop more applications for its products and help ‘future-proof’ the business.

With nearly $8 million in working capital, SECOS places itself in a competitive position to service customers over a year in which continued supply chain challenges are expected.

“We’ve become a significant player in the global bioplastics market … and are highly respected around the world as an organisation that has the manufacturing capacity to produce and supply high-quality products and has access to the market,” Mr Tegoni said.

 Click here to view the full Meet the CEOs session.

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