Metal Recycling Acquisition And Expansions May Offset Revenue Challenges Ahead

Key Takeaways

• Strategic acquisitions and expansions are expected to create synergies and improve efficiencies, potentially enhancing net margins and revenue growth.
  
• A strong balance sheet enables investments in high-return growth projects and shareholder value initiatives, boosting earnings potential and EPS.
  
• Reliance on speculative projections, facility divestitures, and acquisition delays pose significant risks to revenue stability and operational efficiency.

Catalysts

Engages in the waste management and energy infrastructure businesses primarily in Canada and the United States.

• The acquisition of an Edmonton-based metal recycling business and expansion plans are expected to create significant synergies and increase efficiencies in processing, potentially improving net margins.
  
• The strategic expansion of the Clearwater heavy oil terminal and the Montney water pipeline system is anticipated to lead to higher volumes and pricing, driving revenue growth.
  
• The company's strong balance sheet and financial flexibility, with a debt-to-EBITDA ratio of approximately 1.1x, allow for continued investment in high-return growth projects and potential further acquisitions, enhancing earnings potential.
  
• Plans for substantial share buyback programs and increased dividend payouts are expected to enhance earnings per share (EPS) and deliver greater shareholder value.
  
• Investment in high-value growth projects and infrastructure expansions backed by commercial agreements ensures recurring future cash flows, supporting long-term revenue stability and growth.

SECURE Waste Infrastructure Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SECURE Waste Infrastructure's revenue will decrease by 45.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.5% today to 16.8% in 3 years time.
• Analysts expect earnings to reach CA$291.3 million (and earnings per share of CA$1.32) by about March 2028, down from CA$582.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CA$346 million in earnings, and the most bearish expecting CA$244 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.7x on those 2028 earnings, up from 5.9x today. This future PE is greater than the current PE for the CA Oil and Gas industry at 12.6x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.03%, as per the Simply Wall St company report.

SECURE Waste Infrastructure Future Earnings Per Share Growth

Risks

• The company's reliance on forward-looking statements and non-GAAP financial measures introduces uncertainty and risk, as actual results may vary significantly from projections due to unforeseen events, potentially impacting revenues and earnings.
  
• Divestitures, including a significant sale of 29 facilities, have reduced the company's revenue base, which may affect future revenue stability and growth trajectories if not compensated by new or expanded operations.
  
• The expected delay in concluding a pending acquisition introduces integration and execution risks, which could disrupt anticipated revenue streams and operational efficiencies if not managed effectively.
  
• Exposure to potential tariff impacts on the oil and gas sector could influence upstream activity and indirectly affect waste and energy volumes processed by the company, potentially impacting future revenues and net margins.
  
• Emerging competition and market demand fluctuations in the scrap metal sector, despite current tariff exemptions, could pressure margins and profitability if demand projections or pricing advantages do not materialize as expected.

Valuation

• The analysts have a consensus price target of CA$18.781 for SECURE Waste Infrastructure based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$22.0, and the most bearish reporting a price target of just CA$17.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$1.7 billion, earnings will come to CA$291.3 million, and it would be trading on a PE ratio of 14.7x, assuming you use a discount rate of 7.0%.
• Given the current share price of CA$14.79, the analyst price target of CA$18.78 is 21.3% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.