Transpacific Industries (TPI) Update

Submitted by Craig Strzelecki on 17 May, 2007 - 18:56

Transpacific Industries (TPI) shares have jumped two percent in trade today after the company emerged from a trading halt on announcing the acquisition of Cleanaway Australia for A$1.25bn. Sharemarket analysts Macquarie Research Equities analysts remain bullish on the outlook for the stock and have an Outperform broker call and believe that TPI offers a compelling growth story and relative value in an expensive market. Catapults to market leadership: Strategically, the acquisition is very positive for Transpacific, significantly increasing the scale of its Australian solid waste management business. It is now clearly the no.1 player in the A$3.0bn Australian solid waste market, with an estimated 21% market share, which compares to the no.2 player with an estimated 14% market share. Significant synergies expected: Last year, when Transpacific had a tilt at he then Brambles-owned Cleanaway, it expected 'substantial' synergies. The analysts estimate that these were in the vicinity of $40–50m given the synergies extracted from the Waste Management NZ acquisition. Today, the expected synergies are expected to be greater, since Transpacific has made several acquisitions in the solid waste market in Australia over the last year. These include several landfill assets, which will complement the largely collection based Cleanaway business. Transpacific estimate that synergies will be $50m realised in FY08, increasing to $64m in FY09. Pricing attractive and accretive: Transpacific Industries have bought Cleanaway effective immediately for A$1.25bn, representing a pre-synergy multiple of 11.4x FY08 EBITDA, and 7.8x post synergies. The acquisition has been debt-financed initially, with Transpacific expected to undertake a $400–500mequity raising over the next three months, as well as raise hybrid capital, estimated to be around $250m. These capital raisings will be required to restore gearing levels to more appropriate levels. While Transpacific continues to trade ahead of the analysts' valuation, it has built a dominant position in the Australian waste management market from a small niche position in less than five years. There is potential for further acquisitions, with a decision pending on Envirowaste and WSN potentially offered later this year.

Transpacific Industries Group Limited is listed on the Australian Stock Exchange (ASX) under stock code TPI. You can view their investor website here. TPI was listed on the ASX on 3 May, 2005. The company's principal activities are: liquid and hazardous waste management, industrial solutions and commercial vehicle importation and distribution. They provide integrated industrial cleaning and total waste management to customers across Australia and New Zealand, with particular focus on the liquid, solid and hazardous waste management markets. Transpacific is also a key player in the heavy-duty commercial vehicles industry in Australia and New Zealand and has niche operations in parts of Asia. The companies’ wide network of operations includes collection operations, transfer stations, waste-to-energy sites, composting facilities, and recycling plants. These assets enable Transpacific to offer a full range of environmental services to industrial, municipal, and commercial customers. Find out the meaning of the recommendations in this primer. Terry Peabody is the Chairman for Transpacific Industries and Howard Wilson is the CEO. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade TPI. Check your charts and good luck with your share trading!