Aussie growth spurt likely to go on

By Nick Stride

Friday 13th August 2004

Waste Management this week hinted at further acquisitions in Australia as it gave the market its first taste of how the last crop is going.

Bowing to "pestering by analysts," the company included for the first time in its June first-half results segmental reporting on the Australian operations.

These showed little contribution so far from the Adelaide project, which was announced in March but won't come on full stream until next January.

Australian ebitda (earnings before interest, tax, depreciation, and amortisation) was $3.1 million or 9% of the group total.

The target is 25%, and chief executive Kim Ellis said it would reach 20% by the end of the next financial year.

After that, he said, "we'll lift the barrier."

That, said First New Zealand Capital's Murray Brown, indicated there would be more acquisitions of material size "in the medium term."

Reported group earnings were $12.7 million, up 49% on the 2003 first half.

Ignoring the $1.2 million writeback of a provision at Adelaide, the result was up 28% on adjusted earnings for the previous period.

The segmental reporting showed margins were high and rising in New Zealand, where ebitda of $32 million represented 37.4% of the $85.6 million of operating revenue.

That figure was up from 33.4% a year ago.

Australian ebitda margins for the latest half mostly from the existing liquid waste operations were 19%, down from 19.9%.

Ellis said a higher dividend wasn't on the immediate agenda because it would send the wrong message, suggesting Waste Management was no longer a growth company.

But First NZ's Brown said the board had room to couple higher payouts with modest new investment in Australia, and would come under increasing pressure to do so.

First NZ lifted its valuation from $4.36 to $4.80 and its 12-month target to $5.15.

Forsyth Barr raised its valuation to $4.90.

ABN Amro was far more aggressive, basing a $5.52 valuation and a $5.50 target on higher cashflow forecasts.

The company gave "guidance" of a $24 million December full-year profit.

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