Cleanaway $CWY.AX $CWY has put pen to paper on a bid for Suez $SEV Australia's recycling and recovery business. Does this change our valuations?

Let's quickly revisit our deep dive. 👇

The bid is for $2.52bn to be paid from debt and capital raising:
♻️+45% enterprise value
♻️+42% EBITDA ($216m+$515m)
♻️+$70m synergies
♻️Price of x11.7 EBITDA, or x9.1 EBITDA inc synergies

Cheaper than $CWY current 12.9 EV/EBITDA, though will result in significant leverage. Image
If successful the full suite of assets to be acquired will complement the new growth areas for CWY (e.g. waste to energy - a national priority), provide scale and footprint, though also be at high risk of ACCC (see below). Image
The deal is pretty clever. Because ACCC may be a real problem with CWY becoming the clear #1 in Australian waste, a second part of the deal is for assets in Sydney only... this will much more likely pass, and avoid a $45m penalty from CWY to Suez if ACCC rejects the offer.
Pros and cons on the Sydney deal:
♻️$501m is cheap at x6.9 EBITDA ($73m)
♻️Less synergies as these are add-on post-collection services
♻️Landfill has only ~15yrs of life without more CAPEX
♻️Unlikely to face ACCC challenges Image
The takeover bid aligns really well with Cleanaway's Footprint 2025 Strategy. It's a complementary / accretive acquisition at a reasonable price. A significant part of the price will need to be capital raising to prevent future organic growth in other high-yielding areas. Image
CWY remains highly valued relative to growth prospects. EPS growth slowed to 2.7% (revenue flat, EBITDA +2.9%) in 1H21, while PE is >35.

I continue to have a holding position, but even with this news, I won't be increasing my position unless the price drops +20%.

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More from @DownunderValue

8 Apr
Tassal Group $TGR $TGR.AX are a Tier 1 #ASX aquaculture firm. Having been the most shorted stock on the ASX at ~14%, the tide has turned as global salmon prices have run +50%. Is it too late to get on the Fish?

Time to update our deep dive. 👇 Image
1. This link is to the original deep dive (required reading), which wasn’t that long ago. At that time, the stock price was still falling (~$3.35) while the fundamentals perhaps had just started to stabilize. The 1H21 report came out shortly after.

2. Tassal’s Performance: 1H21 had significant headwinds – lower global salmon prices, increased costs of exporting. Despite solid salmon sales and resilient EBITDA, the NPAT was smashed and dividends followed. But the devil is in the detail.. Image
Read 24 tweets
4 Mar
Cleanaway $CWY $CWY.AX is Australia’s largest waste management and recycling co. With the CEO embroiled in controversy and departing imminently, the share price has pulled back 15%. With arguably the best assets in class, is now the time to buy? Let’s take a deep dive. 👇
1. Investment thesis: A stalwart, in a growing market, with irreplaceable assets / rights, an excellent recent track record, improving valuations, and possibly a cultural turnaround starting from the top. A candidate for the buying and holding in a core portfolio.
2. Macro. Last week we discussed Amcor $AMC.AX $AMCR shifting to recyclable packaging,. Well, closing the loop requires us to look at the recycling processing side of the industry as currently 91% of plastics aren’t recycled.

Read 23 tweets

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