|Shares Out. (in M):||2,049||P/E||0||0|
|Market Cap (in $M):||3,677||P/FCF||0||0|
|Net Debt (in $M):||0||EBIT||0||0|
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Shares of Cleanaway represent an opportunity to buy a defensive, under-levered, ESG beneficiary that has opportunities to deploy significant amounts of capital at high incremental returns for a discount to fair value.
Cleanaway is a collection of high-quality waste management assets that generate recurring and relatively defensive returns. We believe a combination of industry growth, continued market share gains and margin expansion will facilitate compelling organic EBITDA growth over the mid-term. Cleanaway has an opportunity to accelerate this growth by allocating capital at high returns in two opportunities: (1) Cleanaway’s leading market share and low leverage make it the natural consolidator of the Australian waste industry, and (2) Cleanaway is also best positioned to develop the infrastructure required for Australia to retain and process recycled materials that were previously being exported overseas. Despite this attractive profile, the business trades at a significant discount to waste peers in North American and Australia, which is unwarranted. We believe this valuation discount will continue to close, driving significant equity appreciation.
Cleanaway is the largest waste management company in Australia, with the leading market position in most of its markets. Cleanaway is vertically integrated from waste collection to processing and disposal. The company reports three segments.
~35% of Cleanaway waste volumes are estimated to be municipal and ~65% are commercial and industrial. The company has little exposure to construction and demolition. This exposure is broadly similar to the large U.S. waste management players.
The great majority of Cleanaway’s revenues are recurring, with 80% being contracted. Most contracts span 3-10 years. Waste management is a reasonably defensive business. Waste volumes are resilient across the cycle.
There is little terminal value risk (no technology risk, offshoring risk, etc.).
Cleanaway has a number of opportunities that should facilitate strong double digit earnings growth over the mid-term:
1) Cleanaway can generate high-single digit organic EBITDA growth over the mid-term
2) Cleanaway has capital allocation opportunities that have the potential to drive EBITDA growth into the double-digits over the mid-term
Attractive absolute and relative valuation:
We believe the valuation gap between Cleanaway and peers will continue to close:
Continued market share gains. Accretive industry consolidation. High returns on capital allocated to build the infrastructure required for Australia's circular economy.
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