Seche Environmental, brief unedited and unfinished writeup
EPA: SCHP
All figures in Euros
Market Cap 11/30:240M
Business: Seche collects and disposes of waste. They operate in two segments, non-hazardous waste and the much more dangerous hazardous waste. Disposal runs the spectrum of simple collection to energy generation (biogas/incineration) to highly engineered decomissioning (PCB transformer).
Investment Belief:
With the Euro-zone in the news everyday there is tremendous pessimism. While it may be warranted towards the government and certain debt laden entities dependent on short term financing (banks, insurance etc) I believe that longer term a company like Seche can and will prosper. A steady, essential (nobody screws with trash unless political suicide is in order), profitable business that is being priced extremely low. Throwing the baby out with the bathwater so to speak.
Financials: In 2010 the company generated 406M revenue, operating cash flow of 93M and CapEx of 30.3M. They carry 382M in total liabilities, this has been trending down the past several years. Debt has decreased from 237M to 177M. FCF, defined as operating cash flow less CapEx, was 63M in 2010, 42 in 2009, 22M in 2008, and -100M in 2007(explained later). Right now Seche is being priced around 10x depressed 2008 earnings.
Management and their use of capital: Joel Seche is CEO of the aptly named company. He owns 40% of shares outstanding according to lemonde.fr economy section. He's been there since 1981 and is currently salaried at 412K Eur. He serves on Altamir Amboise Sca's Board. I loathe multiple boards but can live with one.
He has proven to be a prudent allocator of capital. The negative FCF in 2007 was partially attributable to a large capital expenditure. The financing was secured through common stock issuance. About 85M of stock was issued at share prices roughly 5x those of today. This example (although only one) showcases a textbook example of taking advantage of overpriced stock in a bubble. I applaud management for that.
Business Notes:
Hazardous waste represents a majority of their business. Goldman published reports on Veoila and Suez declaring that industrial waste declines will be a drag on the bottom line. This obviously could effect Seche but...
Non-hazardous waste, although a smaller portion of total revenues is growing much faster. It was up 17.5% YoY, helped by the energy production. With lower debts and higher energy production
Right now it is 2:1 HW:NHW revenue. A weaker Euro will likely facilitate industrial production, leading to more waste generation. They expect 7% growth in 2011. No predictions as to the growth in 2012.
They have a investment in Saur water treatment.
