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Waste Management's unrecognised recovery

Friday 23rd May 2003

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At Waste Management's annual meeting in April chairman Jim Syme told shareholders the growth story had restarted. Investors don't seem to agree.

For the 2002 year WAM reported a 15% lift in net profit, to a record $15.1 million. In happier times companies that delivered double-digit earnings growth could expect to see their shares rerated but WAM's are struggling along at around $3.30, the price its US parent got when it sold out three years ago.

The market is still probably punishing WAM for 2001, when net profit fell from $14.3 million to $13.1 million

This scarcely rated as one of the decade's great corporate disasters but investors overreacted to the loss of Auckland rubbish collection contracts despite the modest earnings impact and have never really come back.

It's also possible they aren't taking account of the effect of the $115 million takeover in 1999 of Wastecare, which doubled (non-cash) depreciation and amortisation expense.

The company has a strong balance sheet with ebit (earnings before interest and tax) covering the interest bill 7.5 times. Markets in New Zealand recovered strongly last year and there are plenty of opportunities in Australia, if that can be considered an attraction for Kiwi corporates.

With a market capitalisation of $320 million WAM still isn't a big company. Its share register is wide open and interest from an Australian player such as Brambles is likely sooner or later.

Bond Offer: Infratil Ltd, 7.2 year & 10.2 year unsecured unsubordinated bond

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