Any thoughts on the waste management industry?

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April 19, 2021

by an member from University of North Carolina at Chapel Hill in New York, NY, USA

Does anyone have any thoughts on the waste management industry? I have found a lot of interesting information on Recycling and hauling, but would love more information on landfills if at all possible!

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Reply by an investor
from Universidade Católica Portuguesa in Lisbon, Portugal
Landfills, if in the right region, sadly, are seen as very valuable assets. It’s very difficult to license a new landfill, everyone ultimately needs it as diversion rates/recycling rates are not what we would all like them to be, but no one wants it in their back yard. Because of that there tends to be a scarcity of them and the right asset can collect very high gate fees. Also in some cases and if properly managed, they can generate gas that ultimately can be burned to generate electricity so more than one source of revenues.
Because of the relatively low value of waste, i.e. not valuable to be transported long distances, location is a key consideration and ultimately most landfills tend to have a catchment area., i.e. geography where they are very competitive.
People have also used landfils as platforms to integrate downwards, i.e. to collection, etc... because ultimately you can use some of that margin to bid more competitively for collection contracts and others.
Several private equities have made fortunes in the space (used to be very pulverized and you can get significant economies of scale/technology, particularly around collection, so very well prone for roll up strategies, particularly if you own the local landfills), while several others have also lost them. In the US Macquarie has done quite well.
You can probably find more information on landfils in the websites of the publicly listed companies like waste management or republic services.
Hope this helps.
commentor profile
Reply by an investor
from Universidade Católica Portuguesa in Lisbon, Portugal
Recycling is really a spread business. It’s actually very similar to another business on the other side of the environmental spectrum which is refining. The reason I say that is that in both businesses you need to watch out not only for the price of the product you are selling, that varies in a certain way, but also the price of your “feedstock”/inputs that can vary in a very different way and more importantly on a uncorrelated manner. So from my perspective some of the most important things when looking at a recycling business are 1- where are you getting your feedstock/inputs, 2 what price will you pay for them 3 - where are you selling the recyclables 4- what price are you paying for them 5- are the two prices correlated and how do they work together,. Fortunes have been lost in recycling (and refining) because while the input cost stayed the same or went higher the output cost went lower and so the margin got squeezed and even went negative, and it’s a really tough day when each product you sell costs you money rather than losing it. There are other things to consider, but this would be one of the first ones I would look at before deciding if I want to spend more time in a business. The ideal recycling businesses are the ones where people pay you to take the waste out of their hands and where your recycling cost gives you plenty of margin to be competitive with the newly produced/non-recycled product. Regulation has created a few of these situations. Hope this helps
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