* Shares trade at 37 times earnings vs. peer average of 21times
* Unproven business areas key to high growth expectations
* Oil price and subsidies uncertainty have slowed biofuelprogress
* Biotech farming field trials show promise
* Major breakthroughs not expected before 2019 -CEO
By Teis Jensen
COPENHAGEN, May 8 (Reuters) - Investors have high hopes forNovozymes and the enzymes it makes to improvechemical processes in a variety of industries, but analysts warnof pitfalls in a growth strategy reliant on a biofuel sectorstill in its infancy and unproven farming biotechnology.
Having built on mother company Novo's work in the 1940s toproduce biological catalysts by fermenting them in large tanks,with its earliest products used to soften leather, Novozymes isnow the world leader in enzymes that replace chemical agents indetergents and speed production of food, animal feed andcorn-based bioethanol fuel.
The business has flourished since being spun off from NovoNordisk in 2000, but to meet investors expectationsit now needs widespread take-up of advanced bioethanol andsuccess in development of microbial products to producepest-resistent high-yield crops.
"The main risk is if those two new business areas do nottake off and start to have some impact by 2020," said analystMichael Jorgensen, of Alm. Brand Bank.
Reuters data shows Novozymes shares trade at about 37 timesthe past 12 months' earnings, against a peer group average of 21times. That high valuation suggests investors are clinging to atarget of double-digit sales growth to 2020 even though thecompany downgraded its forecast in January to 8-10 percent,Jorgensen said.
SLOW PROGRESS
Unlike conventional bioethanol, which is already used widelyin the United States and Brazil, advanced bioethanol is based onbiomass that is inedible to humans, such as corn cobs.
Novozymes has developed enzymes to dissolve such biomass tosugars that can be turned into ethanol, but low oil prices anduncertainty over future subsidies have proved a deterrent forpotential investors in new plants.
"The birth of this industry has taken longer than we hadhoped and even expected," Sebastian Soderberg, head ofNovozymes' biomass conversion business, said at an investormeeting on Wednesday.
The company has said its goal of delivering enzymes to 15biomass conversion plants by 2017 will be delayed. Six plantsare operational worldwide and 20 more are planned, Soderbergsaid.
Given that the Danish company provides more than half theenzymes used to produce today's bioethanol, it is also expectedto become a leading supplier for the second-generation industry,alongside closest rivals Dupont and DSM.
Brazil is seen as the biggest market for advanced biofuelwhile it remains unclear whether or not U.S. politicians willpush for an increase to ethanol levels in gasoline above thecurrent blends of about 10 percent despite objections from somecar manufacturers.
The South American country's largest ethanol producerRaÃzen, a joint venture between Shell and Cosan SA, aims to be ahead of the pack in advanced bioethanol.
"If everything works out we would like to have eight plantsready by 2024," Joao Alberto de Abreu, executive director ofRaÃzen's agroindustrial unit, said at Wednesday's meeting.
U. S. bioethanol producer Valero, meanwhile, said itwill bide its time before committing to the newer fuel.
SEEDS OF GROWTH
Product launches from Novozymes' year-old research alliancewith U.S. seeds company Monsanto would also need tocontribute to growth before 2020 if the Danish company is tomeet market expectations, Alm. Brand's Jorgensen said.
The alliance is focused on developing microbes that protectplants from pests and enable better absorption of soil nutrientsto improve crop yields.
Field trials last year showed that products underdevelopment could increase corn and soybean yields by 2-3percent, based on figures provided by Novozymes on Wednesday.Though more tests and regulatory approvals will be needed beforenew products can be launched, such yield increases would have ahuge impact if applied on a large scale.
"The major breakthroughs in BioAg will probably not comebefore 2019 at the earliest; more likely in 2020 or 2021,"Novozymes Chief Executive Peder Holk Nielsen told Reuters.
However, he rejected claims that the company is overlydependent on the two new business areas and said that the bulkof future growth should come from innovations in establishedoperations -- such as detergents and animal feed -- which haveachieved annual growth of about 7 percent since 2010.
Pension fund ATP, Denmark's largest investor, expectsNovozymes to achieve annual growth of 8-10 percent in the next15 to 20 years, but at the low end of the range in the firstcouple of years.
"That is based on several of Novozymes' partners, such asRaÃzen, saying they will build more plants," ATP portfoliomanager Claus Moller said. "That indicates that enzymes forsecond-generation bioethanol will grow for many years to come." (Editing by David Goodman)
