Solid Waste & Recycling

Feature

General Commentary (June 01, 2000)

Stock markets declined during April and May. The prices of crude oil and natural gas rallied strongly on high demand and low inventories, leading to fears of increased inflation. In order to stem the ...


Stock markets declined during April and May. The prices of crude oil and natural gas rallied strongly on high demand and low inventories, leading to fears of increased inflation. In order to stem the tide of rising inflation and to slow the growth of the U.S. economy to more sustainable levels, the Federal Reserve Board raised interest rates 0.5 per cent in mid May. The Bank of Canada matched this rate increase to protect the loonie from further decline.

The TSE 300 declined 4.67 per cent, while the Dow fell 5.7 per cent. Trading saw a flight to safety from higher risk technology and other new economy sectors to more defensive sectors (financial services) and cyclical sectors (manufacturing and oil and gas).

The Solid Waste Index strongly outperformed the overall market, increasing 1.36 per cent. Despite the generally flat return there was a lot of volatility in the stocks. In general, companies that are more sensitive to new technology declined due to general market conditions, including Kafus Industries (down 42 per cent) and Imco Recycling (down 38 per cent). Safety-Kleen declined 51.9 per cent as investors remain concerned about the future financial viability of the company and its parent company, Laidlaw Inc.

Many of the stocks involved in solid waste disposal saw a dramatic improvement as investors returned to more traditional sectors and companies. Strong rallies included Casella Waste Systems (up 74.2 per cent), Republic Services (up 51 per cent) and Waste Connections and Waste Management, both of which gained nearly 50 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 investment potential, many companies are included due to their size or importance in the industry. Investors should consult with an investment advisor before selecting specific companies for investment.

Hot Sector News

After completing a number of major acquisitions in recent years, Allied Waste Industries Inc. and Waste Management Inc. have started to move forward in integrating their new operations and reducing their substantial debt load.

Scottsdale, Arizona-based Allied reported revenues of $1.4-billion for the first quarter and adjusted net income of $27-million before the acquisition and other one-time costs. The company also announced that it had sold $320-million in assets since January 1, 2000, while acquiring $279-million of operations with revenues of $154-million. This included an asset swap with Folsom, California-based Waste Connections Inc.

Houston, Texas-based Waste Management reported improved financial results for the first quarter of 2000. Revenues increased 4.8 per cent to $3.2-billion, while net income fell to $55-million from $346-million as the company accounted for a number of one-time gains and costs related to the company’s restructuring efforts. A number of international operations were sold, raising $1.3-billion. After the quarter, further sales were announced, including the German operation for $80-million, the BioGro fertilizer division for $200-million and selected North American operations for $110-million. The company remains in negotiations to sell its UK and Swedish divisions.

Solid Waste Index

Solid Waste Index Symbol Exchange $Jan98 $Mar00 $May00 %Index %Change Shares $OrigValu $CurValu
Allied Waste Industries Inc. AW N.Y 20.38 6.56 9.56 10 45.73 37 750 351
Capital Environmental Res CERI NASDAQ 11.00 4.00 3.63 10 -9.25 68 750 247
Casella Waste Systems Inc. CWST NASDAQ 24.75 7.25 12.63 10 74.21 30 750 382
Imco Recycling Inc. IMR N.Y 16.75 11.06 6.75 5 -38.97 22 375 151
Kafus Industries Ltd. KS AMEX 3.32 6.06 3.5 10 -42.24 226 750 791

Marsulex Inc. MLX T.O 6.00 2.75 3.5 5 27.27 63 375 218

Republic Services Inc. RSG N.Y 24 10.94 16.56 10 51.37 31 750 517

Safety-Kleen Corp. SK N.Y 15.75 1.31 0.63 10 -51.91 48 750 29

Vivendi SA-ADRs WDIY NASDAQ 9.67 22.5 19 10 -15.56 78 750 1473

Waste Connections Inc. WCNX NASDAQ 12 12.13 18.19 10 49.96 63 750 1136

Waste Management Inc. WMI N.Y 23.75 13.69 20.38 10 48.87 32 750 643

Total 100 $7,500 $5,943

(Note: numbers rounded, * denotes weighting change)

Statistics

Starting Point Jan 98 Mar 00 May 00 Percentage Return
TSE Composite 6700 9462 9022 -4.67%
DOW 7322 10921 10299 -5.70%
Solid Waste Index 7500 5863 5943 1.36%

Technical analysis: The 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 May 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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