(MENAFN- ProactiveInvestors)Broker finnCap has initiated coverage on Iofina (LON:IOF) and suggested operations could be at an inflection point. The company which has developed a patented process enabling extraction of iodine from the brines associated with hydrocarbon production has had a chequered past the house broker concedes but with six plants up and running it is on the cusp of profitability and the generation of free cash flow. In fact according to Iofina's trading update earlier this week it is already trading profitably with production in the first half of 2015 set to exceed company guidance. Iofina appear to be getting to grips with the operation of their IOsorb plants finnCap reckons. Plants IO#2 and IO#3 were in operation for the whole of 2014 and finnCap reckons both delivered strong use and extraction rates. 'Although IO#4 5 and 6 were only operational for c.6 months in 2014 early signs are also encouraging. The recent announcement upgrading 2015 H1 iodine production to 280+ tonnes lends significant weight to this argument' the broker said. The broker is predicting that the company will be profitable at the EBITDA (underlying earnings) level this year and has pencilled in a figure of US$1.1mln for 2015 on sales of US$25.0mln. 2016 should see the company generating free cash flow finnCap believes and 2017 should see profit before tax turn positive. Those forecasts are based on the recently commissioned plants achieving similar operating metrics to the established plants which seems a reasonable assumption now that Iofina has gained experience in the process. Meanwhile the market for iodine looks solid finnCap notes with consumption growing at a 4.5% compound rate since 1960 while prices have increased at a compound rate of 5%. 'Commercial sources of iodine are scarce' the broker notes adding that iodine is an element that is essential for human nutrition as well as many industrial processes. The stock currently priced at 26p is rated a 'buy' by finnCap which has set what it calls a conservative price target of 45p. 'We see substantial upside to this if Iofina can materially improve capacity utilisation or add further IOsorb plants something we believe it could do from internal cash generation alone' finnCap concluded.
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