These three waste management companies make money from what consumers and businesses throw away. Waste is always being created and when the economy is growing, even more will be made and require management. These companies offer good opportunities for investors who like a cleaner world and to make some money at the same time.
Transpacific Industries (ASX: TPI) is a market leader in waste treatment and disposal services. It has been restructuring its business to concentrate on its Australian market by putting its New Zealand business up for sale.
Last week, indicative bidding for the NZ unit closed. It is also possible that the unit could be spun off and listed. The unit had revenue of $387 million in 2013 and the company forecasts that in 2014 revenue will be $385 million, with a forecast EBITDA of $110 million.
Over the past two years, total NPAT before abnormals for Transpacific has been rising steadily from $60.1 million to $86 million, although it had heavy abnormal charges over the past three years. That is why it wants to cut costs and focus on its core business market.
The market's interest in the company is picking up, raising the share price from about $0.75 in July to its current $1.11, up 48%.
Tox Free Solutions (ASX: TOX) is waste management service operator that primarily works in the resources sector. It has major works in both Western Australia and Queensland, so it can cover both mining and oil and gas developments.
For mining, a majority of its work is in the production stage, so if miners are increasing production more waste is being created. So the current mining pullback in new developments and exploration does alter the company's business that much.
Its biggest opportunities are in oil and gas, for example in QLD around the Surat basin for coal seam gas development. Also, it has a major contract with Chevron (NYSE: CVX) to be the oil giant's waste management service provider for the next 10 years in WA. Other offshore oil developments in the Browse basin will need to ship waste back to the coast, so more work is possible for the company.
Novarise Renewable Resources International (ASX: NOE) is another interesting story about waste management. It recycles waste materials of polypropylene, the plastic in containers that regularly get disposed of from kitchens or offices.
It converts the waste into fibre-grade pellets that can be used for filament yarns, carpeting, webbing products or even cloth. Its production facility is in Quanzhou, China.
After listing in 2009, the company has been earning a net profit after tax between $15 million and $17 million over the past three years. In 2013, it had NPAT of $16.7 million from $83 million in revenue, making its net profit margin about 20% and return on equity 19%.
Foolish takeaway
Like the old saying, "one man's trash is another man's treasure." Waste management companies are usually good investments because the service is essential and waste will never stop.
Some companies may have contracts that block out competitors in an area, but still competition can be tough in winning those contracts. Look for long-term contracts and expanding business areas being covered to gauge a company's potential. However, as Transpacific found out during the GFC, growing too big too quickly can backfire on you when the economy turns. It is scaling back to a trimmer form and still holds the largest market share in Australia, so keep an eye on its story.
