Investors should take a closer look at companies in waste management because there could be some industry consolidation coming. France-based Suez Environnement, which is part-owner of Australia's second-largest waste management company, SITA Australia, informed the market it is looking for investment opportunities and Australia is on its acquisition radar.
According to The Australian Financial Review, the company said it has around 700 million euros ($963 million) of extra financial capacity that it could potentially put toward acquisitions. Waste management is a great industry for turning trash into cash. All households and businesses produce rubbish and waste and companies that can land the contracts and tenders for collecting and processing the waste will normally have strong income streams.
Waste management stocks in the ASX
There are a number of private and publicly listed companies the French company could consider. The number one leading company is Transpacific Industries Group Ltd (ASX: TPI). Its current market capitalisation is $1.2 billion. Another ASX-listed company is Tox Free Solutions Limited (ASX: TOX) with a $391 million market cap.
What do they have to offer?
Transpacific is going through a restructuring now, following a long string of acquisitions with heavy debt that made the company very weak when the GFC occurred. After selling off its New Zealand waste disposal business and bringing long-term debt down to manageable levels, the company is in a much better condition.
Tox Free Solutions is smaller, but also offers specialisesd services for the resources sector. If Suez Environnement wanted to move into industrial waste services from mining or oil and gas projects, Tox Free Solutions may be of interest to the company.
For investors wanting to position themselves in this industry, you still want to stick with quality companies with stable earnings. Tox Free Solutions announced its recent half-year profit was in line with the first half of financial year 2014. Analysts are expecting earnings growth of about 10% annually in the next few years.
Transpacific did show a loss in its half-year results, but part of that is due to the restructuring and sale of businesses. The company's outlook for financial year 2015 isn't especially strong, but it could be a good turnaround story over the next 1 – 3 years. In the meantime, a company like Suez Environnement could see this as an opportunity.
