THE AUSTRALIAN Tox Free Solutions a buy as rubbish turns into cash
TIM BOREHAM THE AUSTRALIAN MARCH 22, 2016 12:00AM
Tox Free Solutions (TOX) $2.60 (trading halt)
The Perthbased waste manager’s philosophy is that as everyone makes a mess, a bigger population means there’s more to clean up.
That’s why Tox is bulking up in the NSW market — also currently the fastestgrowing — with its third eastern seaboard acquisition in five years.
Tox is paying $70 million cash for the private Worth Corporation, which has industrial wastemanagement facilities in the Illawarra and the Hunter Valley.
Tox chief Steve Gostlow says the purchase is also consistent with Tox’s desire to shift its revenues away from the resources sector — for obvious reasons.
Worth’s headline jobs include water treatment work for BlueScope’s endangered blast furnace and Colorbond line at Port Kembla. But these account for a “small chunk” of Worth’s $60m of revenues.
“This is a broader diversification into the general industrial market — anything from mechanical workshops to smaller manufacturers in Sydney,’’ Gostlow says.
The purchase means Tox has a true national presence in the $4bn industry, competing with listed peer Cleanaway.
Tox’s product suite now covers anything from radioactive waste to household slops. But unlike Cleanaway, it doesn’t operate tips.
Tox is raising $20m via an underwritten institutional offer at a set $2.55 a share, with a further $4m share purchase plan.
In 2013, Tox paid $85m in cash to buy Queenslandbased Wanless, from rich lister and stock car enthusiast Ron Wanless.
In late 2011, Tox paid $58m for the business assets of the struggling listed rival Dolomatrix.
Worth is expected to contribute $12.9m of EBITDA in 201516 (on a fullyear basis) and be earnings per sharepositive by 13 per cent.
Broker Morgans had forecast a Worthless Tox to deliver EBITDA of $71m for the full year.
Tox recently nabbed a fiveyear contract at BHP Billiton’s Olympic Dam mine and also secured a twoyear extension to its existing contract with Chevron’s Gorgon project.
While the latter is handy, it will be lowervolume work as the construction phase of the project winds down.
Tox has a clean acquisitive track record, reflected in the mere 2 per cent discount the raising has been struck at.
There’s not much on the table but investors should not waste the opportunity to top up through the SPP.
Cleanaway (CWY) 76.5c
Formerly Transpacific, Cleanaway sets a textbook case for how not to grow by debtfuelled acquisition.
Cleanaway has been on a protracted cleanup, the latest instalment being this month’s management revamp that saw the departure of liquid waste boss Tony Roderick.
New CEO Vik Bansal’s quest is to make Cleanaway a “boring” company.
Cleanaway’s halfyear results showed the germ of a recovery, with “underlying attributable profit after tax” up 27 per cent to $29m on revenue of $746m (up 8 per cent). But Cleanaway’s debt stands at $325m and we await further proof the company has avoided the compactor. Sell.
Emefcy (EMC) 31.5c
Most investors are familiar with the term “software as a service”, a posh name for cloudbased delivery. But water as a service, or WaaS? To the Boris Liberman backed Emefcy, WaaS is about selling its Sabre wastewater treatment technology as a contract to provide the service under a longterm service agreement.
The cost of the plant is to be borne by thirdparty financiers, underpinned by lockedin pricing.
Emefcy has signed its first contract to supply Sabre to Israeli’s HaYogev municipality.
While there are no imminent signings, chairman Richard Irving cites a “sales pipeline” of 44 projects with a $15m contract value.
The selling point of the Sabre plants is that they’re smaller than conventional wastewater plants and they’re not smelly. Crucially, the Israeli technology is based on “natural ambient air flow’’, which uses 90 per cent less power.
Emefcy is targeting island nations short of freshwater, as well as large resort chains.
Irving says a small island country typically spends $2$3 per cubic metre to desalinate water and then a similar amount to treat it.
Emefcy can provide both components for $2 per cubic metre.
“Our cost is 20c (per cubic metre),’’ Irving says.
“We can recognise six times more profit over a six to 10year takeorpay contract than just selling the units.’’
Emefcy has moved fluidly since backdoor listing just before Christmas, having raised $9.9m at 20c apiece.
There’s smart money behind this, including GE Ventures and Israel’s Office of the Chief Scientist, so have a dip. Spec buy.
The Australian accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser. The author does not own any of the stocks mentioned.