Transpacific Industries

Transpacific Industries (TPI) have a $14.40 share price target and an Outperform rating retained from Australian Stock Exchange analyst Macquarie Research Equities. Transpacific has been very active since listing in May 2005. A number of significant acquisitions have been completed over the last 12 months. A fortnight ago the company undertook a book build to raise $430m in ordinary equity to repay the debt used to purchase Cleanaway, representing 15% of issued capital. The placement was finalised at $13.00, and the stock has performed poorly since, despite the company’s dominant position in the Australian waste management market. Overnight, Chief Executive Officer, Howard Wilson, announced his resignation. The current CFO, Trevor Coonan, has been appointed CEO, effective 1 July 2007. Howard Wilson is to remain with Transpacific for up to six months to ensure a smooth transition. An executive search is being conducted to find a suitable replacement CFO. Although the resignation of Howard Wilson may be viewed negatively, the analyst believes Transpacific has strong divisional management in place to ensure operations continue to be managed effectively and that profit targets can be achieved. Trevor Coonan becomes the new CEO, after around two and a half years as Transpacific CFO. The founder and major shareholder of Transpacific Industries, Terry Peabody, continues as Executive Chairman. The new CEO has no direct operational management experience, but has been involved in all of the major acquisitions undertaken by Transpacific since listing in May 2005. In terms of operational management, reporting to the Executive Chairman and CEO will be Harold Grundell and Greg Campbell. Harold Grundell has been with Transpacific for over 17 years, and currently runs the Energy division. Going forward, Harold will be CEO, Transpacific Industries, which will comprise the Energy, Liquid Waste, Industrial Solutions, Commercial Vehicles and Manufacturing, and Biosolids and Recycling operations.
Greg Campbell joined Transpacific two years ago, and is currently the Managing Director of Transpacific New Zealand. He has overseen the achievement of delivering the forecast synergies and profit improvement’s from the Waste Management New Zealand acquisition. Going forward, Greg will become the CEO of Transpacific Solid Waste (which now includes the WNZ, Cleanaway, Baxter and Twigg businesses) and also all of the New Zealand operations. While the resignation of Howard Wilson may be viewed negatively by the market in the short term, Executive Chairman Terry Peabody has assembled a strong and deep management team over several years within Transpacific Industries (TPI). Transpacific 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 Transpacific having around $500m in surplus borrowing funding in place, which the analyst expect to be employed accretively.

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.