If you haven't heard the term 'NIMBY stocks', don't worry, there's nothing weird about them, although they can be 'on the nose' for a host of reasons.
NIMBY is a term used to describe companies that operate businesses that most people don't want close to them – 'Not In My BackYard'. They include toxic, medical and other types of industrial waste removal and storage businesses. After all, a waste dump or sewerage treatment plant is not exactly the ideal neighbour.
With rapid global population growth and urbanisation, the issue of what we do with our waste products is becoming more and more important. And several analysts and market commentators see this as the next growth sector.
So let's have a closer look at some of the companies in this sector.
Transpacific Industries Group Ltd (ASX: TPI) is the largest listed company in the waste management sector by a wide margin. Following a disastrous few years pre and post the GFC, when the company loaded up on debt and went on an acquisition spree, Transpacific is now in the process of right-sizing its business, and selling off non-core operations in an effort to reduce debt and become more efficient. The company has $750m in net debt, although it recently sold its New Zealand business for NZ$950 million. Proceeds will be used to redeem its Transpacific preferred securities (ASX: TPAPA), refinance its debt facilities and fund future investments. Now may be the perfect time to have a closer look at Transpacific.
Tox Free Solutions Ltd (ASX: TOX) also offers waste management services, as well as a network of hazardous materials waste management facilities around Australia. Tox has doubled its earnings per share since 2010, as revenues have tripled, although return on equity has averaged around 10% over the same period despite debt rising from $13m to $101m in 2013 as the company makes a number of acquisitions. That is always a risky strategy, and it's hard to know if Tox has digested something that might be harmful to its health over the long run. At this stage, I'd be sitting on the sidelines to see how the business progresses.
Phoslock Water Solutions Limited (ASX: PHK) sounds like a mouthful, but could be a company of the future. Based on an environmentally-friendly tool developed by the CSIRO to manage algae, Current treatments for controlling algae generally have at least one negative aspect, but Phoslock's has very few if any downsides. Phoslock has struggled to gain significant sales growth, but it may be just one or two contract wins away from becoming more widely-known and profitable.
AnaeCo Limited (ASX: ANQ) is a $38m market cap company developing a process to treat organic urban solid waste. With a patented system currently under test, AnaeCo plans to turn household waste into energy and fertiliser. However, it's not yet certain that its system is commercially viable or scalable, but should it be successful, AnaeCo's market could be enormous. There's still plenty of time to see whether this company will be successful or not.
SteriHealth Limited (ASX: STP) specialises in the collection and treatment of regulated clinical waste for a range of clients including hospitals, dentists, vets, aged care and pharmaceutical industries. The company is profitable, and is trading on a low P/E ratio of around 6 for the 2014 financial year. This may be one stock to add to your watchlist.
Foolish takeaway
NIMBY companies can have strong competitive advantages – after all, councils, hospitals and the like only need one company to pick up and remove their waste. Adding numerous clients gives the company virtually loads of monopoly businesses, making it difficult for competitors to set up shop.
