With its first commercial plant launching in June 2025, Northstar is set for rapid expansion, leveraging its patented recycling platform to transform asphalt shingle waste into high-value materials.
Hi, James--really appreciate the work you've put into pulling together this story and model.
I've been combing through your DCF and hit what I think are a couple of minor typos, one methodological error (I think) and curious about what I see as a gaping hole!
typos - in the years when you're adding individual plant revenues and multiplying by 6 month construction and 6 month ramp up (effectively, recognizing a quarter of revenue in first year), the parentheses should be around the sum of the facilities, e.g, (a + b + c) * (0.25). In two years, '26 & '28 I believe, you have (a + b + c * (0.25)). It takes 2026 revenue from $43M to $27.3M.
net present value - I believe NPV should be sum of two PVs: discounted cashflows and discounted terminal value. Your 'Terminal Value' is NPV of final P/E multiple as a final period cashflow (which should work), but then you calc a second PV on that already discounted amount. PV(term) should be about 2x higher. Then I think NPV should be sum of both--jacks up share PV quite a bit.
gaping hole(?) - I'm far less sure about this, but I don't understand how you've covered facility construction capex. You seem to be allocating a certain amount of cash from ops to next year's cap ex, but I don't see where the rest comes from. For example, by YE 2027, 6 facilities have been built at a cost of $90M, but I can't see where those funds come from. You pay off the $8.8M loan over Y1 and Y2, but need to raise $90M over the same period.
Putting all of this together, ROOF accumulates $100M LT debt that puts an $10M interest payment drag on profitability, dropping PV(cash) to $126 from $163. But including a 2x PV(term), even arbitrarily dropping the P/E multiple to 8x for the debt, boosts the NPV to $638M, or $2.22 per diluted share.
Let me know if you'd be interested in looking at a copy of my edited version.
Very extensive write up and deep dive. But the bigger issue is that the stock is illiquid. less than 300k shares traded per day. I will subscribe to check out your other content.
It is really concerning: GAF operates in the United States and is the largest shingle manufacturer in the country. It appears the project has been delayed or put on hold.. They could easily sell the products, yet they are not making progress on completing the project. Owens Corning has proven technology, but without further updates, it can be assumed that the pilot project is not proceeding.
Could be numerous factors: technology doesn’t scale, inferior technology, yield/purity issues, unattractive economics (high CAPEX/OPEX), centralised location, can’t secure feedstock from other manufacturers, risk averse nature, purely PR stunt.
We haven’t heard much about these endeavours since 2022, the exact time that Northstar was sending their output samples to every single offtakes in the space. Probably realised their tech was inferior and made no economic sense given Northstars evident advantages.
What is so concerning by this? Only strengthens Northstars position. They don't need to build 100 facilities to be successful. As shown in the DCF if they build 15 at 80,000 they will see major success
Hi, James--really appreciate the work you've put into pulling together this story and model.
I've been combing through your DCF and hit what I think are a couple of minor typos, one methodological error (I think) and curious about what I see as a gaping hole!
typos - in the years when you're adding individual plant revenues and multiplying by 6 month construction and 6 month ramp up (effectively, recognizing a quarter of revenue in first year), the parentheses should be around the sum of the facilities, e.g, (a + b + c) * (0.25). In two years, '26 & '28 I believe, you have (a + b + c * (0.25)). It takes 2026 revenue from $43M to $27.3M.
net present value - I believe NPV should be sum of two PVs: discounted cashflows and discounted terminal value. Your 'Terminal Value' is NPV of final P/E multiple as a final period cashflow (which should work), but then you calc a second PV on that already discounted amount. PV(term) should be about 2x higher. Then I think NPV should be sum of both--jacks up share PV quite a bit.
gaping hole(?) - I'm far less sure about this, but I don't understand how you've covered facility construction capex. You seem to be allocating a certain amount of cash from ops to next year's cap ex, but I don't see where the rest comes from. For example, by YE 2027, 6 facilities have been built at a cost of $90M, but I can't see where those funds come from. You pay off the $8.8M loan over Y1 and Y2, but need to raise $90M over the same period.
Putting all of this together, ROOF accumulates $100M LT debt that puts an $10M interest payment drag on profitability, dropping PV(cash) to $126 from $163. But including a 2x PV(term), even arbitrarily dropping the P/E multiple to 8x for the debt, boosts the NPV to $638M, or $2.22 per diluted share.
Let me know if you'd be interested in looking at a copy of my edited version.
Very extensive write up and deep dive. But the bigger issue is that the stock is illiquid. less than 300k shares traded per day. I will subscribe to check out your other content.
Very fair point! Have to be strategic if wanting to accumulate.
It is really concerning: GAF operates in the United States and is the largest shingle manufacturer in the country. It appears the project has been delayed or put on hold.. They could easily sell the products, yet they are not making progress on completing the project. Owens Corning has proven technology, but without further updates, it can be assumed that the pilot project is not proceeding.
Could be numerous factors: technology doesn’t scale, inferior technology, yield/purity issues, unattractive economics (high CAPEX/OPEX), centralised location, can’t secure feedstock from other manufacturers, risk averse nature, purely PR stunt.
We haven’t heard much about these endeavours since 2022, the exact time that Northstar was sending their output samples to every single offtakes in the space. Probably realised their tech was inferior and made no economic sense given Northstars evident advantages.
Hi Adamo,
What is so concerning by this? Only strengthens Northstars position. They don't need to build 100 facilities to be successful. As shown in the DCF if they build 15 at 80,000 they will see major success