Solid Waste & Recycling

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Waste Stock Watch (August 01, 1999)

North American stock markets consolidated in June and July. The Dow firmed in advance of quarterly earnings announcements and declined against news and concerns about a further U.S. interest rate incr...


North American stock markets consolidated in June and July. The Dow firmed in advance of quarterly earnings announcements and declined against news and concerns about a further U.S. interest rate increase. Canadian markets, which are more heavily weighted to natural resource companies, performed well during the period as resource prices and markets continued to recover.

The Solid Waste Index reacted to disappointing news during this period, dropping 20.5 per cent, compared to a 0.9 per cent increase in the Dow and a 4.1 per cent increase in the TSE 300 index. This decrease was due primarily to a number of American solid waste and environmental service companies that didn’t meet strong growth expectations for the second quarter.

Most notably, Waste Management Inc. declined 51 per cent on news that revenue growth would fall short of expectations. Safety-Kleen Corp. declined 23 per cent during the period as second quarter net income (before restructuring charges) fell short of analyst expectations. Newalta Corp. continued to recover, gaining 19 per cent during the period as expectations of a recovery in the oil and gas service sector continued to improve as higher oil prices held.

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 waste management industry as a whole. While some companies may have good investment potential, many companies are included due to their size or importance in the industry. Investors should consult with an investment advisor before determining specific companies to invest in.

Hot Sector News

The Solid Waste Index was adjusted this month to reflect the initial public offering of Burlington, Ontario-based Capital Environmental Resource, Inc. in June 1999. Capital has been added to the index and replaces Sani-Gestion Inc., which was recently acquired by Vivendi S.A. of France.

Since its inception in May 1997, the company has enjoyed a period of rapid growth through the acquisition of solid waste collection and recycling facilities in four Canadian provinces and two U.S. states. Capital currently operates eleven transfer stations, six recycling facilities and two landfill management contracts in thirty markets.

Its growth strategy is to acquire waste disposal businesses in secondary markets in Canada and the Northeast U.S. Second quarter results showed that this strategy is paying off. Revenues increased 50 per cent to $22.9-million in the quarter, while earnings per share increased 133 per cent to 20 cents per share. Capital completed eleven acquisitions during the quarter, bringing the company’s revenue run rate to $100-million per year. In addition to growth through acquisition, Capital also achieved 5.2 per cent internal growth during the quarter, showing the strength of its underlying markets.

Solid Waste Index Symbol Exchange $Jan98 $May99 $July99 %index %change Shares $OrigValu $CurValu
Allied Waste Industries Inc. AW N.Y 20.38 18.63 17.94 10 (3.70) 37 754.06 663.78
Anadime Corp. AEM T.O 4.00 1.00 0.90 5 (10.00) 469 1876 422.1
Browning-Ferris Industries BFI N.Y 34.56 41.50 44.88 10 8.14 22 760.32 987.36
Capital Environmental Res CERI NASDAQ 11.00 11.00 11.50 10 4.55 68 748 782
Conor Pacific Environ Tech CPA T.O 0.75 0.62 0.64 10 3.23 1000 750 640
Marsulex Inc. MLX T.O 6.00 3.99 3.65 10 (8.52) 125 750 456.25
Newalta Corp. NAL T.O 8.20 3.90 4.65 10 19.23 91 746.2 423.15
Philip Services Corp. PHV T.O 12.10 0.41 0.25 5 (39.02) 31 375.1 7.75
Republic Services Inc. RSG N.Y 24.00 23.50 20.19 10 (14.09) 31 744 625.89
Safety-Kleen Corp. SK N.Y 15.75 15.69 12.00 10 (23.52) 48 756 576
Waste Management Inc. WMI N.Y 23.75 52.88 25.50 10 (51.78) 32 760 816
Total 100 $9,019.68 $6,400.28
(Note: numbers rounded, * denotes weighting change)
Statistics
Starting Point Jan 98 May 99 Jul 99 Percentage Return
TSE Composite 6329 6802 7081 +4.1%
DOW 7322 10559 10665 +0.9%
Solid Waste Index 7500 8017 6379 -20.5%
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, July 30. 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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