* Shares trade at 37 times earnings vs. peer average of 21 times
* Unproven business areas key to high growth expectations
* Oil price and subsidies uncertainty have slowed biofuel progress
* Biotech farming field trials show promise
* Major breakthroughs not expected before 2019 -CEO
By Teis Jensen
COPENHAGEN, May 8 (Reuters) - Investors have high hopes for Novozymes and the enzymes it makes to improve chemical processes in a variety of industries, but analysts warn of pitfalls in a growth strategy reliant on a biofuel sector still in its infancy and unproven farming biotechnology.
Having built on mother company Novo's work in the 1940s to produce biological catalysts by fermenting them in large tanks, with its earliest products used to soften leather, Novozymes is now the world leader in enzymes that replace chemical agents in detergents and speed production of food, animal feed and corn-based bioethanol fuel.
The business has flourished since being spun off from Novo Nordisk in 2000, but to meet investors expectations it now needs widespread take-up of advanced bioethanol and success in development of microbial products to produce pest-resistent high-yield crops.
"The main risk is if those two new business areas do not take off and start to have some impact by 2020," said analyst Michael Jorgensen, of Alm. Brand Bank.
Reuters data shows Novozymes shares trade at about 37 times the past 12 months' earnings, against a peer group average of 21 times. That high valuation suggests investors are clinging to a target of double-digit sales growth to 2020 even though the company downgraded its forecast in January to 8-10 percent, Jorgensen said.
Unlike conventional bioethanol, which is already used widely in the United States and Brazil, advanced bioethanol is based on biomass that is inedible to humans, such as corn cobs.
Novozymes has developed enzymes to dissolve such biomass to sugars that can be turned into ethanol, but low oil prices and uncertainty over future subsidies have proved a deterrent for potential investors in new plants.
"The birth of this industry has taken longer than we had hoped and even expected," Sebastian Soderberg, head of Novozymes' biomass conversion business, said at an investor meeting on Wednesday.
The company has said its goal of delivering enzymes to 15 biomass conversion plants by 2017 will be delayed. Six plants are operational worldwide and 20 more are planned, Soderberg said.
Given that the Danish company provides more than half the enzymes used to produce today's bioethanol, it is also expected to become a leading supplier for the second-generation industry, alongside closest rivals Dupont and DSM.
Brazil is seen as the biggest market for advanced biofuel while it remains unclear whether or not U.S. politicians will push for an increase to ethanol levels in gasoline above the current blends of about 10 percent despite objections from some car manufacturers.
The South American country's largest ethanol producer Raízen, 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 plants ready by 2024," Joao Alberto de Abreu, executive director of Raízen's agroindustrial unit, said at Wednesday's meeting.
U. S. bioethanol producer Valero, meanwhile, said it will bide its time before committing to the newer fuel.
SEEDS OF GROWTH
Product launches from Novozymes' year-old research alliance with U.S. seeds company Monsanto would also need to contribute to growth before 2020 if the Danish company is to meet market expectations, Alm. Brand's Jorgensen said.
The alliance is focused on developing microbes that protect plants from pests and enable better absorption of soil nutrients to improve crop yields.
Field trials last year showed that products under development could increase corn and soybean yields by 2-3 percent, based on figures provided by Novozymes on Wednesday. Though more tests and regulatory approvals will be needed before new products can be launched, such yield increases would have a huge impact if applied on a large scale.
"The major breakthroughs in BioAg will probably not come before 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 overly dependent on the two new business areas and said that the bulk of future growth should come from innovations in established operations -- such as detergents and animal feed -- which have achieved annual growth of about 7 percent since 2010.
Pension fund ATP, Denmark's largest investor, expects Novozymes to achieve annual growth of 8-10 percent in the next 15 to 20 years, but at the low end of the range in the first couple of years.
"That is based on several of Novozymes' partners, such as Raízen, saying they will build more plants," ATP portfolio manager Claus Moller said. "That indicates that enzymes for second-generation bioethanol will grow for many years to come." (Editing by David Goodman)