Pure Play “Green” Stock Primed For Growth
SGDH is the only pure play on the exciting treeless paper market that appears to be entering a key inflection point in its adoption.
Download Report in PDF Or Scroll down to read the complete report below.
Click here to receive future alerts directly in your inbox
Tracing its roots to 1989, SGD Holdings, Ltd. (OTCPK – SGDH) operates through its subsidiary Ecopaper, Inc. to develop, market, and sell paper and related paper and office supplies. It may be the first firm in history to manufacture and sell high quality, treeless paper that is smooth, acid-free, durable, and chemical free. The treeless paper industry is still in an early adoption phase but advances in quality, technology and the increased desire for true biodiversity has enable this segment to serve as a replacement for traditional wood-based products.
The Company’s paper products are made in Costa Rica and are manufactured with proprietary, innovative processes and exotic raw materials which have resulted in products that appeal to the consumer and positively impact the environment. For example, the cutting-edge manufacturing process benefits from a tremendous supply of raw materials as Ecopaper and its related company Costa Rica Natural paper sources all of its raw materials from agro-industrial waste. Scalability is a non-factor as Costa Rica alone produces 230,000 tons of agro-industrial waste each year.
Paper remains a major form of communication and paper and cellulose made from wood are still the dominant form of production in the industry. In fact, one third of the total wood and wood fiber produced annually is used to produce paper. Two thirds of the fiber used comes from virgin wood and the rest comes from waste fibers. The high levels of paper produced from wood are not sustainable and have a negative impact on the environment. Additionally, most of the waste paper that is labeled ‘recycled’, which is termed Post Consumer Waste (PCW), contains little waste material and creates the same problems as traditional paper in terms of landfills and incinerators.
The PCW products from Ecopaper are made from banana, coffee, hemp, tobacco, sugar cane and other waste materials and help cut waste, save energy, protect natural resources, and reduce pollution. It should be noted if Ecopaper would not use the waste materials it quite literally would be incinerated and headed for landfills.
By producing quality products that are treeless, acid-free, chlorine-free, 100% biodegradable and recyclable, and are derived from agro-industrial waste, the Company’s business has an incredibly favorable impact on the environment.
Some of the most popular offerings consist of the following items:
Ecopaper offers products made from such raw materials as banana, coffee, hemp, sugar cane and others.
Agro-industrial fibers come from the waste of processing common agricultural products. Once the mill process has begun, the post-consumer pulp is mixed with water in the pulper, which is a huge mixer that dissolves the paper in the water. The agro-industrial fiber and the disintegrated post-consumer fiber are mixed in a 20%-80% proportion respectively to form a suspension in the water. At this moment natural coloring can be added to achieve attractive shades in the paper. The mix is thrown through a sprinkling system into an endless band that acts as a sieve, letting the water pass through while keeping the pulp in suspension. At the end of this process, the paper sheet will only keep 3% of water and will be rolled into a big roll. The final process of rewinding, cutting, and embossing varies depending upon what type final product is being produces along with the associated unique design.
One example of how waste from raw materials can be turned into paper is the use of bananas, which is just one of the agro-industry wastes that Ecopaper utilizes in production. The banana agro-industry processes 42 million tons of bananas annually with 2 million hectares planted. This industry generates numerous wastes such as the plastic that wraps the bananas, plastic cords to tie the wrapping, damaged bananas and the pinzote (stems). An alarming quantity of over 10 million metric tons of pinzote is thrown in landfillsor in local rivers. Pinzote is harmful to the environment and does not break down in acceptable biodegradable composition. Figure 2 below is a simple illustration of the raw material to paper production of bananas which is a process that is similar to the other agro-industrial wastes the Company uses.
In our view, Ecopaper has significant advantages over traditional paper products, primarily driven by the positive impact on the environment.
Harry Johansing, Founder, President
Mr. Johansing founded the company in 1995 and has served as its President and General Manager since that time. Under his leadership, the Company achieved peak annual revenue of $5 million and had its products offered in leading retail chains in the U.S. such as Starbucks and Whole Foods. Prior to founding the Firm, Mr. Johansing served in senior management positions at Kinko’s. He attended the University of California, Santa Barbara and earned an MBA from The Owner Managed Institute.
In our view, the biggest factor in impeding Ecopaper’s success is related to the timing and magnitude of broad adoption due to higher than average industry prices and misconceptions regarding quality versus mainstream tree pulp-based paper products. On a related note, considering that only 30% recycled paper use has met critical mass, it may take some time to reach greater replacement of this paper. Nonetheless, considering the strength of the brand, quality of the product, and its eco-benefits, we do not view these risks as serious threats to Ecopaper’s future. Competition from larger firms or even from newer entrants with similar approached is another typical concern and is also consistent with firms of Ecopaper’s size and standing.
SGD Holdings’ operating subsidiary, Ecopaper Inc. may be the first firm in history to manufacture and sell high quality, treeless paper that is smooth, acid-free, durable, and chemical free. Importantly, SGDH is the only pure play on the exciting treeless paper market that appears to be entering a key inflection point in its adoption. Drivers include better pricing, higher quality, and greater adoption by environmentally conscious buyers. The replacement opportunity for treeless paper is enormous and the Company has the scalability to become a force in the industry as broad adoption occurs. The Company has a great brand name and a history of millions in annual sales to some of the largest and biodiversity conscious retail firms in the U.S.
As a result, we rate these shares Speculative Buy with a $0.20 price target, which reflects the value of its brand, innovative process, pure play leadership status, and a 4x multiple on future sales.
Recent Trading History For SGDH
You Might Also Like
Senior Analyst: Robert Goldman
Rob Goldman founded Goldman Small Cap Research in 2009 and has over 20 years of investment and company research experience as a senior research analyst and as a portfolio and mutual fund manager. During his tenure as a sell side analyst, Rob was a senior member of Piper Jaffray's Technology and Communications teams. Prior to joining Piper, Rob led Josephthal & Co.'s Washington-based Emerging Growth Research Group. In addition to his sell-side experience Rob served as Chief Investment Officer of a boutique investment management firm and Blue and White Investment Management, where he managed Small Cap Growth portfolios and The Blue and White Fund.
I, Robert Goldman, hereby certify that the view expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the recommendations or views expressed in this research report.
This Opportunity Research report was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces research via two formats: Goldman Select Research and Goldman Opportunity Research. The Select product reflects the Firm’s internally generated stock ideas while the Opportunity product reflects sponsored research reports. It is important to note that while we may track performance separately, we utilize the same coverage criteria in determining coverage of all stocks in both research formats. While stocks in the Opportunity format may have a higher risk profile, they typically offer greater upside as well. Goldman Small Cap Research has been compensated by a third party in the amount of $4,000 for a research subscription service. All information contained in this report was provided by the Company via press releases and filings, or our own due diligence. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. Analysts are compensated on a per report basis and not on the basis of his/her recommendations.
Goldman Small Cap Research is not affiliated in any way with Goldman Sachs & Co.
The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, or other firms. Goldman Small Cap Research relied solely upon information provided by the Company through its filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research report or note is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed.
This report does not take into account the investment objectives, financial situation, or particular needs of any particular person. This report does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with FINRA, the U.S. Securities and Exchange Commission or with any state securities regulatory authority.
ALL INFORMATION IN THIS REPORT IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION.
For more information, visit our Disclaimer: www.goldmanresearch.com