Tightening Environmental Regulations And New Hazardous Waste Capacity Will Drive Stronger Future Performance

Catalysts

About Séché Environnement

Séché Environnement is a specialist in hazardous and non hazardous waste management and related environmental services with a growing international footprint.

What are the underlying business or industry changes driving this perspective?

• Acceleration of large multiyear remediation and total waste management contracts in Latin America and Southern Africa, such as Las Salinas in Chile and comprehensive offers in Peru, is set to convert into steadier, higher quality revenue and operating income as early start up costs subside and contract volumes normalize.
• Structural tightening of environmental and biodiversity regulations, including coastal landfill rehabilitation in France and stricter industrial compliance worldwide, should continue to drive high margin remediation, emergency response and industrial services, supporting sustained revenue growth and resilient net margins.
• Ramp up of advanced hazardous waste infrastructure, notably the carbon soot incinerator in Singapore reaching full capacity from 2026 and the planned Groupe Flamme hazardous incineration assets in France, is expected to add high contribution volumes and lift group EBITDA and earnings over the medium term.
• Ongoing shift by industrial clients to outsourced, global waste management solutions and long duration service contracts, as seen with strong performance in Chile, Peru and Spill Tech, should enhance revenue visibility, increase pricing power and progressively support higher group margins.
• Strengthened balance sheet with leverage below 3 times EBITDA, ample liquidity and disciplined CapEx provides capacity to fund selective acquisitions such as Groupe Flamme and targeted capacity extensions, enabling earnings accretive external growth while preserving free cash flow.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Séché Environnement's revenue will grow by 5.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.4% today to 5.8% in 3 years time.
• Analysts expect earnings to reach €87.0 million (and earnings per share of €9.63) by about December 2028, up from €43.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 12.1x on those 2028 earnings, down from 12.4x today. This future PE is about the same as the current PE for the GB Commercial Services industry at 12.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.92%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistently low electricity and energy sale prices in France could structurally weaken the circular economy segment, reducing the profitability of biogas and steam generation and structurally weighing on group EBITDA and net margins over time.
• Prolonged weakness and investment delays in the European chemical sector, a key customer base for purification, solvent regeneration and hazardous incineration, could lead to sustained volume pressure and underutilised assets, limiting revenue growth and compressing earnings.
• Execution and ramp-up delays on major long term contracts such as the carbon soot incineration agreement with Linde in Singapore and large Latin American remediation projects could push expected high margin contributions further out, diminishing visibility and delaying the anticipated increase in group earnings.
• Underperformance or operational inefficiencies in certain international businesses, notably Spain and parts of Southern Africa, may offset strong growth elsewhere, leading to structurally lower average margins and constraining the improvement in consolidated operating income.
• Higher interest costs from an enlarged debt base used to finance acquisitions and major projects, combined with potential constraints on adjusting CapEx if cash generation weakens, could erode net profit growth and make it harder to sustain leverage below 3 times EBITDA.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €102.2 for Séché Environnement 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 €115.0, and the most bearish reporting a price target of just €89.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €1.5 billion, earnings will come to €87.0 million, and it would be trading on a PE ratio of 12.1x, assuming you use a discount rate of 9.9%.
  
• Given the current share price of €69.5, the analyst price target of €102.2 is 32.0% higher.
  
• 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.