Close the Loop: Undervalued Gem in the Circular Economy?

Amid a landscape of rising operational challenges and shifting leadership, Close the Loop (ASX: CLG) and its partner Loop Industries (NASDAQ: LOOP) are navigating a pivotal crossroads. While short-term financial headwinds have rattled investor confidence, the companies' strategic pivot toward low-cost manufacturing, technology licensing, and a leadership overhaul may position them as undervalued plays in the circular economy. Here's why investors should take note.

Leadership Overhaul: A New Era of Focus

In July 2025, Close the Loop underwent a seismic leadership reshuffle, with CEO Joe Foster, chairman Greg Toll, and CFO Marc Lichtenstein stepping down from their board roles. Foster remains as COO, while the company seeks a U.S.-based CEO and an IT-focused chairman to align with its North American expansion. This restructuring follows the collapse of a $143M takeover proposal by Adamantem Capital in 2023, which left shares halved to 12.5 cents. The shakeup signals a strategic realignment, prioritizing operational discipline and capital efficiency over aggressive growth.

Strategic Shifts: Betting on Licensing and Low-Cost Regions

Loop Industries, a key subsidiary, has shifted its model to license proprietary recycling technology in high-cost regions like Europe, while directing capital to low-cost hubs such as India. The $10.4M licensing deal with Reed Societe Generale Group in late 2024 exemplifies this strategy, providing upfront cash and milestone payments for European deployments. Crucially, Loop retains up to 50% equity in future facilities, creating a recurring revenue stream.

The Infinite Loop India project, now in its groundbreaking phase, aims to produce T2T polyester fiber and bottle-grade PET resin—a move targeting the $12B global fashion and beverage packaging markets. With Tata Consulting Engineers as technical partner, this facility could become a cornerstone of Loop's growth, leveraging India's low-cost manufacturing优势 and demand for sustainable materials.

Financials: Navigating Near-Term Pain for Long-Term Gain

While Loop's Q3 2024 net loss widened to $11.9M due to an $8.46M impairment charge from terminating the SK Geo Centric joint venture, revenue grew 100% year-over-year to $52K. The impairment, while painful, reflects a strategic reset: exiting unprofitable ventures in favor of higher-margin licensing and India-focused production.

Close the Loop's 2025 guidance anticipates a 50% drop in H2 EBITDA to $11M–$13M, driven by delayed plant openings and a temporary shift in revenue mix. However, management remains confident in resolving these hurdles, with the Mexicali facility—a critical North American hub—expected to stabilize operations by early 2026.

Takeover Speculation: A Buying Opportunity?

The failed 2023 takeover bid by Adamantem Capital, which offered a 49% premium, underscores the company's undervalued status. With a current market cap of just A$12.23M and a technical “Sell” rating, shares may reflect pessimism over near-term EBITDA pressures. Yet, the strategic pivot to licensing and India's growth story suggest a turnaround is possible. Should Loop secure additional licensing deals or attract a new suitor, the stock could rebound sharply.

Risks and Considerations

• Execution Risks: The Infinite Loop India project's timeline and cost overruns could strain cash reserves.
• Market Volatility: The circular economy sector faces macroeconomic headwinds, including commodity price swings and regulatory delays.
• Leadership Transition: Success hinges on the new CEO's ability to unify teams and secure financing for expansion.

Investment Thesis

Close the Loop and Loop Industries present a high-risk, high-reward opportunity. For investors with a 3–5 year horizon, the companies' technology licensing model, India-first strategy, and potential undervaluation post-takeover fallout could yield outsized returns. Key catalysts include:
1. Infinite Loop India: Commercialization by 2026 could validate the low-cost manufacturing thesis.
2. Licensing Deals: Progress in Europe and beyond would boost recurring revenue.
3. Leadership Stability: A new CEO's ability to navigate near-term EBITDA pressures while executing the long-term vision.

Final Verdict

Close the Loop is a speculative play, but its strategic pivot and undervalued status warrant attention. Investors should consider dollar-cost averaging into dips below 15 cents, with a focus on long-term appreciation. Monitor Q4 2025 updates on the India project and licensing pipeline for confirmation of the turnaround narrative.

Investment rating: Hold for the near term, with Buy potential on a stabilization of EBITDA and positive catalysts.