Back in mid-2007, Transpacific Industries Group Ltd. (ASX: TPI) was a market darling. In the preceding 12 months, the share price had increased 130% to $10, and profit had grown by more than 100%. But then the Global Financial Crisis (GFC) hit markets around the world.
Suddenly, the $2 billion plus debt it carried became a lead weight on the share price, and it lost all of its gains in the following 12 months. Fast forward seven years and the share price is languishing around 72 cents. So is the stock a buy at current levels?
Transpacific is one of Australia's leading waste management companies. It provides commercial, industrial and residential collection services for general waste, recyclables and construction and demolition waste. It also operates complementary services, including waste transfer stations, recycling facilities, quarantine operations and waste treatment operations.
In February this year, the company reported a half-year net loss of $41.7 million. The result was down from the $167.1 million it reported in the first half a year earlier. According to Transpacific, the net loss was mainly a result of adjustments related to "impairments of its hydrocarbons business and costs associated with the fleet grounding in August 2014".
Transpacific is currently mid-way through a restructure. It is in a much better position than it was a year earlier, having sold its New Zealand waste disposal business, and reduced its long-term debt to $54 million.
To assist in the restructure, Vik Bansal has been appointed chief executive. Bansal was most recently the chief operating officer at Valmont Industries Inc., and was heavily involved with rebuilding the company. He was also instrumental in generating strong revenue and earnings growth. This could prove to be a timely appointment for Transpacific.
The purchase of the Melbourne Regional Landfill business from Boral Ltd. (ASX: BLD) in February was a strategic acquisition that will strengthen and protect the Cleanaway business. It allows Transpacific to deliver and process collected waste to its own site, rather than a third party, which should drive enhanced cash flows and higher returns.
Future growth prospects for the industry are positive, with the compound annual rate predicted to be 4.4% through to 2020-2021. This is much higher than the GDP growth in Australia over the same period, which is predicted to be 2.8%.
The consensus 12-month price target of 82 cents represents upside of almost 15%. Two asset managers have also shown faith in the stock recently. Ellerston Capital and Schroder Investment Management Australia have taken substantial holdings in the stock, at 8.73% and 7.28% respectively.
Foolish takeaway
Transpacific looks like a potential turnaround story, and appears attractive at these levels. It has embarked on a transformational restructure and brought in a CEO with strong credentials. The annual result on August 21, containing the full-year profit and fiscal outlook, will provide clarity on whether now is the right time to buy.
