Solid Waste & Recycling

Feature

General Commentary (January 01, 2000)

The fall proved to be a very positive period for stock markets. After continuing to consolidate in October, markets rallied strongly in November to achieve new all-time highs. Markets reacted favourab...


The fall proved to be a very positive period for stock markets. After continuing to consolidate in October, markets rallied strongly in November to achieve new all-time highs. Markets reacted favourably to interest rate increases by the U.S. Federal Reserve Board and the Bank of Canada. With oil prices rallying well over US$25 in November there was concern over inflation.

The structure of the Dow was changed dramatically at the end of October, with the addition of Home Depot, Intel, Microsoft, and SBC Communications to the index. This change continued an ongoing shift in the Dow over the last decade to increase the weighting in new emerging sectors that better reflect the modern U.S. economy. Similarly, the components of the Solid Waste Index have been changed to focus more closely on the North American solid waste industry. Effective this issue, Conor Pacific, Anadime, Newalta and Philip Services Corp. have been removed from the index.

Four new companies have been added: Casella Waste Systems and Waste Connections are emerging regional solid waste companies. Vivendi SA, a French environmental conglomerate has been added as the company has been actively acquiring companies in North America this year and is rapidly becoming a significant player on this continent. Imco Recycling is a large metal recycling company.

The Solid Waste Index performed well during the period, increasing 6.5 per cent, compared with a 6.9 per cent return for the Dow and a 16.6 per cent return for the TSE 300. This increase was led by Republic Services, which increased 10.2 per cent and Vivendi, which increased 14.6 per cent. Many companies in the solid waste industry continued to experience difficulties, however, as Waste Connections and Allied Waste each declined 37 per cent and Waste Management declined 12 per cent.

It’s important for investors to remember that the index is a basket of companies that are selected to reflect the market performance of the hazardous waste industry as a whole. While some companies may have solid investment potential, many are included due to their size or importance in the industry. Investors should consult with an investment advisor before selecting specific companies for investment.

Colin Cieszynski is an investment advisor at Canaccord Capital. Contact Colin at 416-867-4543; fax 416-879-7706; email Colin_Cieszynski@ canaccord.com.

Hot Sector News

Kafus Industries Ltd. was added to the Solid Waste Index as of the previous issue. Through a number of subsidiaries, Vancouver, B.C.-based Kafus produces a number of industrial products from solid waste or sustainable resources.

Kafus’ largest subsidiary, The Canfibre Group Ltd., produces medium density fibreboard (MDF) from waste wood in urban areas. Construction on its first plant in Riverside, California has been completed and the plant is in test production. A second facility in Lackawana, New York is under construction. Facilities in Chicago and Amsterdam are in advanced planning stages.

Kenaf Industries Ltd., a second subsidiary, is using the fibre of the kenaf plant for several industrial applications. It develops plants to produce newsprint and for use in composites by sister company Kafus Bio-Composites Inc. This division recently announced the completion of a facility designed to produce composite materials from the combination of kenaf fibre with polymers. Commercial shipments commenced in October to several Tier-1 automotive companies for use in interior automotive trim.

Kafus’ strategy is to produce low cost, high quality industrial products. Its success in attaining long term production agreements suggests strong demand for quality green products and the potential for future innovators in the recycling sector.

Solid Waste Index
Solid Waste Index Symbol Exchange $Jan98 $Sept99 $Nov99 %index %change Shares $OrigValu $CurValu
Allied Waste Industries Inc. AW N.Y 20.38 13.25 8.25 10 -37.74 37 750 303
Capital Environmental Res CERI NASDAQ 11.00 5.50 5.50 10 0.00 68 750 375
Casella Waste Systems Inc. CWST NASDAQ 24.75 16.06 16.25 10 1.18 30 750 492
Imco Recycling Inc. IMR N.Y 16.75 16.13 12.88 5 -20.15 22 375 288
Kafus Industries Ltd. KS AMEX 3.32 9.38 7.06 10 -24.73 226 750 1596
Marsulex Inc. MLX T.O 6.00 3.25 2.9 5 -10.77 63 375 181
Republic Services Inc. RSG N.Y 24 10.88 12 10 10.29 31 750 375
Safety-Kleen Corp. SK N.Y 15.75 12.44 11.06 10 -11.09 48 750 526
Vivendi SA-ADRs WDIY NASDAQ 9.67 14.5 16.63 10 14.69 78 750 1289
Waste Connections Inc. WCNX NASDAQ 12 20 12.56 10 -37.20 63 750 785
Waste Management Inc. WMI N.Y 23.75 19.44 16.94 10 -12.86 32 750 534
Total 100 $7,500 $6,748
(Note: numbers rounded, * denotes weighting change)
Statistics
Starting Point Jan 98 Sept 99 Nov 99 Percentage Return
TSE Composite 6700 6763 7889 16.65%
DOW 7322 10279 10988 6.90%
Solid Waste Index 7500 6336 6748 6.50%
Technical analysis: The Solid Waste Index is calculated on a bimonthly basis. In order to maintain consistency and to meet the publishing deadline, it’s calculated on the last Friday of the second month of the given time period. The graph is plotted on a biweekly basis and the final point on the graph represents the closing values for the three indices Friday, November 26. The index was started at a value of 7500 points so that its magnitude is in the same range as the DOW and the TSE. It’s made up of a proportional representation of the firms listed, broken down by the itemized percentages. Share quotes ignore currency.

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