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Polygiene - Ingredient brand with unmet demand

18 september 2020

ViralOff a game-changer following COVID-19
We forecast a sales CAGR of 42% 2019-2022e
DCF valuation range of SEK 23-43
COVID-19 has raised awareness of clothes function
Polygiene is a Swedish company that provides sustainable technology for the treatment of textiles and other materials. The company does not manufacture fabrics or products, but rather acts as an ingredient brand. This means that it aims to be recognised, understood and valued by the customers that use its treated products. Polygiene communicates this function by supplying hang-tags and labels so users understand that these products stay fresh and can be washed less often. The company’s vision is to transform consumables to durables and be part of creating a more sustainable textile industry. The company has a global reach and its treatments are used by over 140 premium brands including Adidas, Salomon, Converse, 2XU and Diesel.

The textile industry needs to be more sustainable
Polygiene has seen very strong demand for its new ViralOff technology since the April launch in response to the COVID-19 pandemic. Although the core business was negatively affected by COVID-19, we see strong growth in the coming years. We forecast 2022e net sales reaching SEK 198m, corresponding to a CAGR of 42% for ’19-‘22e. Furthermore, we do not expect that operating costs, and particularly personnel costs, will grow at the same pace as sales, leading to an EBIT margin expansion from -9.6% in 2019 to 15.6% in 2022e.

Scenario valuation method due to ViralOff uncertainty
We have constructed three different DCF scenarios based on ‘22e ViralOff sales and the consequent gross margin level. Since long-term demand for ViralOff is uncertain following its very successful launch in April, we deem this the best approach to valuation. Our base level sales for the product range from SEK 60m to SEK 150m in ‘22e. From that level, we assume a growth rate in accordance with the target market growth rate and apply a WACC of 9.5%, resulting in a DCF valuation range of SEK 23-43 per share

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