Solid Waste & Recycling

Feature

Hot Sector News (October 01, 1999)

Stock markets continued to consoli- date through August and September as investors recognized that, as resource prices continue to rally, inflation in the US might pick up. This may cause the US Feder...


Stock markets continued to consoli- date through August and September as investors recognized that, as resource prices continue to rally, inflation in the US might pick up. This may cause the US Federal Reserve Board to continue to raise interest rates to keep the US economy from overheating. The Dow experienced a number of large daily swings but essentially continued to consolidate with most of its 3.5 per cent loss occurring in late September. The TSE 300 also remained flat during the period, gaining 0.7 per cent with strong gains in resource stocks overcoming declines in other areas.

The solid waste sector continued to react during this period as news of further earnings warnings from Waste Management and Republic Services cast doubt on the performance of the sector as a whole. (See Hot Sector News.) The Index declined 14.5 per cent during the period, led by a 52 per cent decline in Capital Environmental Resources, a 46 per cent decline in Republic Services, a 26 per cent decline in Waste Management and a 26 per cent decline in Allied Waste Industries.

However, some companies in the index performed well. Anadime Corp rallied 11 per cent as the recovery potential for junior oilfield service companies began to get recognition. Safety-Kleen also increased 3 per cent as its largest investor, Laidlaw Inc., placed its interest up for sale as part of an internal reorganization.

The Index was adjusted this month; Kafus Industries Ltd. was added. Kafus — an industrial products manufacturer that uses recycled and alternative resources — replaces Browning Ferris Industries, which was removed on the completion of its takeover by Allied Waste.

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 solid 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 advisor before making investment decisions.

Recognizing that the solid waste industry is relatively mature and tends to grow at a similar rate to the overall economy, many companies in the industry have expanded through acquisition in order to increase growth and operating efficiencies. While these strategies have proved effective in the past, it’s become necessary for companies to complete larger and larger acquisitions in order to continue the trend. An acquisition is more than the purchase of assets; it also involves the successful integration of corporate cultures and operating methods.

Two companies that have been leaders in consolidating the solid waste industry released earnings warnings in July and August that sparked large declines in the stock prices of other companies. On August 16, Waste Management announced large-scale changes: both the chairman and president were replaced and the company announced plans to sell some of its international assets, all of its non-core assets, and up to ten per cent of its North American solid waste assets.

Following this announcement, Republic Services Inc. also announced that earnings for 1999 would be lower than expected due to difficulties in integrating assets recently purchased from Waste Management.

Solid Waste Index
Solid Waste Index Symbol Exchange $Jan98 $July99 $Sept99 %index %change Shares $OrigValu $CurValu
Allied Waste Industries Inc. AW N.Y 20.38 17.94 13.25 10 (26.14) 37 754.06 490.25
Anadime Corp. AEM T.O 4.00 0.90 1.00 5 11.11 469 1876 469
Capital Environmental Res CERI NASDAQ 11.00 11.50 5.50 10 (52.17) 68 748 374
Conor Pacific Environ Tech CPA T.O 0.75 0.64 0.55 10 (14.06) 1000 750 550
Kafus Industries Ltd. KS AMEX 3.32 8.88 9.38 10 5.69 226 750.32 2119.88
Marsulex Inc. MLX T.O 6.00 3.65 3.25 10 (10.69) 125 750 406.25
Newalta Corp. NAL T.O 8.20 4.65 4.10 10 11.83 91 746.2 373.1
Philip Services Corp. PHV T.O 12.10 0.25 0.29 5 16.00 31 375.1 8.99
Republic Services Inc. RSG N.Y 24.00 20.19 10.88 10 (46.11) 31 744 337.28
Safety-Kleen Corp. SK N.Y 15.75 12.00 12.44 10 3.67 48 756 597.12
Waste Management Inc. WMI N.Y 23.75 25.50 19.44 10 (23.76) 32 760 622.08
Total 100 $9,009.68 $6,347.95
(Note: numbers rounded, * denotes weighting change)
Statistics
Starting Point Jan 98 July 99 Sept 99 Percentage Return
TSE Composite 6700 7081 6763 -4.5%
DOW 7322 10655 10279 -3.5%
Solid Waste Index 7500 7409 6336 -14.5%
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, September 24. 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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