Stock: Tox Free Solutions

Stock code: TOX

Share Price: $2.12 (as at 4pm 20/05/11)

Broker Buy Recommendations:

RBS Morgans (16th May 2011, share price was $2.18 that day)

DJ Carmichael (4th March 2011, share price was $2.20 that day)

Evans & Partners (2nd August 2010, share price was $2.33 that day)

Investor Centre: Tox Free Solutions

Chart: Share price over the year to 20/05/2011

Perth-based Tox Free has been on the radar of several analysts in recent years, and for those with the foresight to get on board in 2004 or 2005 it has provided stellar returns. From just $0.20 in early 2005 Tox Free soared to over $2.50 in just two years. Likewise those who jumped on board post-GFC in early 2008 when it was trading at just over $1.00 a share have been richly rewarded. As of Friday 20th May TOX was trading at $2.12, a discount of 15% to its rolling year high of $2.50 in late-October.

Description

Perth-based Tox Free provides remediation and recycling solutions for contaminated soils, water treatment and hazardous waste treatment. The company operates two treatment facilities at Port Hedland and Kwinana.
In 2009, Tox Free bought the Barry Brothers business from Programmed Maintenance Services, which both moved the company into the sewer and high-pressure water cleaning and waste-water recycling and reclamation areas of the market, and diversified it geographically, into the eastern seaboard states and South Australia.

The company has 23 strategically located sites where it manages a range of industrial and hazardous wastes. TOX also provides industrial maintenance services via its subsidiaries Tox Free Industrial Solutions, Barry Bros Specialised Services and Grime Fighters.

Amongst other services Tox Free operations include contaminated site remediation, hazardous and industrial waste management, recycling and resource recovery, waste and wastewater treatment, operations and maintenance and industrial services such as industrial cleaning, concrete demolition, tank degassing and vessel entry. Specifically this includes the removal of industrial waste, heavy metal contamination, lab chemicals and contaminated soils.

Earnings

Link to company Earnings Report: Tox Free Solutions Half Year Earnings Report – Dec 31st, 2010

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Source: DJ Carmichael

Analysts

Simon Bond, RBS Morgans is keen on Tox since its acquisition of Waste Solutions, which expands its Australian geographical presence to provide customer services across the north-west. ‘Following a 13 per cent increase to our earnings per share forecasts for 2012 amid recent share price weakness, we upgrade to a buy, with contract wins the key catalyst,’ says Bond.

Paul Adams, Head of Research, DJ Carmichael also has a buy on the waste management company. Adams writes in a research note: ‘The waste management outlook remains very positive, with TOX focusing on increasing market penetration in all resource hubs of Australia (primarily QLD and WA focused). With recent capital investment across TOX’s business, TOX is well positioned to benefit from the significant uplift in resource/LNG capex spending over the next few years. Management continue to target ROIC after tax of 18%. We believe the market will start rerating TOX for its attractive exposure to the resource waste management spend. An improvement in margins and award of additional contracts will be key catalysts. We maintain our Buy recommendation.’

See DJ Carmichael’s coverage and BUY recommendation here.

Mike Hawkins, CIO Evans & Partners, likes the company and thinks that although it has a base of serving the resources industry in Western Australia, which makes it a resources volume story, recent acquisitons mean that its national footprint is coming together. ‘Waste management is the key theme and we think that puts the company in an excellent position, given that environmental and waste-management benchmarks only likely to get more onerous,” says Hawkins. “Also, the fact that its major competitor, Transpacific Industries, is showing signs of being capital-constrained is an added plus. Over the next five years we see plenty of opportunities for Tox Free, and in particular, the contract wins it has had over the last 18 months should kick in…we expect to see earnings rising by up to 50 per cent,” says Hawkins. 

Conclusion

Although management hasn’t provided an earnings guidance, the company is very bullish on the second half of this year and beyond. With hundreds of millions of dollars in tenders and contracts with most of the major oil and gas companies, TOX is well positioned to benefit from an ever-increasing waste management spend. And with resource companies Australia-wide making quite a mess, somebody has to go in and mop it up. Should it manage to secure ongoing contracts Tox Free and those who back the company may be in a position to clean up.

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