Australia | Nov 02 2023
This story features CLEANAWAY WASTE MANAGEMENT LIMITED, and other companies. For more info SHARE ANALYSIS: CWY
By Tim Boreham
The weekly household chore of taking out the trash has become even more burdensome as municipalities move to a four-bin system – with varying collection intervals for each receptacle.
In your columnist’s ‘hood, the yellow bin goes out fortnightly and the new purple-capped glass bins are collected monthly – or is that every four weeks?
Green bins are collected weekly … or are we thinking of the red waste bins?
Never before has the role of the ‘binfluencer’ – the householder in the street who can be relied on to get it right on collection night – been more crucial.
Of course, there’s a reason behind the proliferation of gaily-plumaged urban wheelus binnus and that’s to boost our recycling rates that lag those of the western world.
According to the federal government’s National Waste Report, 63% of waste from all streams was recycled in the 2020-’21 year, a 2.2 percentage point improvement on the 2016-’17 baseline.
The government targets an 80% recovery rate by 2030.
On the ASX, the need for sophisticated downstream recovery facilities has resulted in an ownership shakeout, leaving Cleanaway Waste Management ((CWY)) as the only listed exemplar of scale.
Along the way, skip operator Bingo Industries was bought out by private equity but is subject to regular rumours of an ASX resurrection. Tip owner Baxter was bought by Cleanaway and the WA-based Tox-Free Solutions was subsumed by Transpacific industries.
Transpacific then bought Cleanaway and changed its name to that better-known moniker.
Cleanaway’s experience shows that while large licks of capital are required to compete in the circular economy, it has concomitant rewards.
Already dominant in upstream solid waste collections, Cleanaway has identified the poor retrieval rate of plastics, textiles and hazardous waste as growth areas.
By 2030 the company aims to reduce its methane emissions by -30%, with landfill gas capture playing a key role in meeting these targets.
Nationally only 15% of plastics are re-used, because only three types (including PET) are suitable for the mechanical recovery process. But new chemical-based processes can re-form various plastics into a crude-oil like stake, to make new virgin resins.
On this front, Cleanaway has a memorandum of understanding with Qenos, the country’s biggest plastics maker to build advanced stock to convert soft and mixed plastics into feedstock for Qenos’s existing plants.
Given the potent – or pungent – theme of value adding waste, many investors see Cleanaway as a defensive stock, although waste volumes vary according to the level of industrial activity.
Cleanaway’s performance also has been weighed down by elevated labour costs, as well as rectification imposts resulting from flooding at its New Chum landfilling near Ipswich.
At last month’s AGM, management guided to current-year earnings before interest and tax (ebit) of $350m, compared with $302m previously.
Management aspires to ebit of more than $450m by 2025-’26 year and its “high circularity, low carbon” mantra will play a key role.
In microcap land, Delorean Corporation ((DEL)) claims to be the only ASX-listed entity that produces renewable gas from biomethane – and who are we to argue?
The gas is produced via anaerobic digestion, which diverts organic waste from landfill and uses it to produce clean energy.
The company can also produce green hydrogen.
Delorean has several bioenergy projects on its slate, including a $53m facility for Yarra Valley Water in Lilydale, Victoria, and a renewable gas plant for Brickworks ((BKW)) at Horsley Park in Sydney.
Valuation wise, if only Delorean could go Back to the Future: the stock has been hammered -71% since October 2022, when it entered a now defunct equity and project funding deal with Palisade Impact.
Formerly named Pearl Global, tyre recycler Entyr ((ETR)), has an extant plant in Staplyton, Queensland that so far has converted two million used tyres into fuel, gas, carbon products and steel.
Shockingly, 86% of our spent tyres are exported to be burned or buried.
Sadly, investors are tyre-ing of the story: Entyr shares have also lost -70% of their value in the last year, despite the company last year chalking up record revenue of $5.4m.
The company is worth a mere $7.7m.
As with Delorean the problem lies with deep losses – a -$10.2m deficit last year – at a time when down-in-the dumpster punters are in no mood to give microcaps the benefit of the doubt.
Finally, waste is perceived as being in solid form or perhaps the nasty liquid chemical variety. But dealing with contaminated water is a pressing issue as well, especially in geographies where the lifegiving commodity is in short supply.
Formerly known as Emefcy, Fluence Corp ((FLC)) notes that 2.3bn people reside in water-stressed conditions – 733m of them critically so.
With a focus on North America and South East Asia, Fluence operates in the wastewater treatment and wastewater-to-energy sectors, either on a build-own-operate or build and maintain basis.
Clients include Coca Cola and Pepsi – it pays to be agnostic in business – and DuPont, General Motors, General Electric, Stanford University, Halliburton and Exxon.
With a keen eye on trends, the company cites the water-intensive semiconductor chip sector and lithium mining as key sectors.
Fluence’s off-the-shelf offerings range from facilities suitable for small cities, down to modular plants suitable for small communities such as resorts.
A key selling point is that traditional wastewater plants produce nitrous oxide, which is 300 times more potent than carbon dioxide as a greenhouse gas.
In contrast, the Fluence process generates only innocuous nitrogen.
When it comes to financial performance, the story sours somewhat: the company posted a -50% drop in June half revenue, to US$31.4m and lost -US$8.7m compared with a -US$7.7m deficit previously.
The company outlines a sales pipeline of US$119m, which is expected to grow to US$135m by the end of December.
With Fluence shares losing two-thirds of their value over five years, investors have been willing to throw out this baby with the bathwater.
The company is now valued at less than $100m and thus trades on a revenue multiple of less than one. The trouble is we’re not in the dot-com 1990s anymore, when such metrics were fashionable.
Given Fluence/Emefcy has been listed for eight years, it’s time for management to staunch the flow of red ink.
This story does not constitute financial product advice. You should consider obtaining independent financial advice before making any financial decisions
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For more info SHARE ANALYSIS: BKW - BRICKWORKS LIMITED
For more info SHARE ANALYSIS: CWY - CLEANAWAY WASTE MANAGEMENT LIMITED
For more info SHARE ANALYSIS: DEL - DELOREAN CORPORATION LIMITED
For more info SHARE ANALYSIS: ETR - ENTYR LIMITED
For more info SHARE ANALYSIS: FLC - FLUENCE CORPORATION LIMITED