This report starts with a list of 15 waste management stocks from developed markets with links to individual analysis articles. Below the list, there is general overview of the industry, what are the key factors to look at when it comes to investing, the global trends where you can find opportunities.
This is a short
summary of my initial thoughts and findings on Waste Management.
Did you know,
the average American throws away 2.01 kg (4.43lb) of rubbish every day, or,
that the total volume of Municipal Solid Waste (MSW) produced in the US, each
year, is equal to the weight of 5,600 Nimitz Class aircraft carriers, 247,000
space shuttles, or 2.3m Boeing 747 jumbo jets. And, if all of the solid waste
collected in the US was put in a line of average sized waste disposal trucks,
that line would extend from NYC to Los Angeles, over 100 times. Also, 40% of
all food in the US goes uneaten and is thrown away. (Source: Bank of America
Merrill Lynch – Waste)
Well, stick with
me and ‘fun’ statistics like these will be at your fingertips. Over the last
few weeks, I have had to read through them all. So, I’m going to inflict a few
on you. With this report, amaze and fascinate your family and friends. In fact,
don’t buy them presents (too much waste) email them this report instead, as a
But, for you as
a value investor, let’s have another ‘fun fact’ and this time a special
question. According to the World
Bank, commercial fees for collecting MSW range from about $35 per year in
low-income countries to $300 in high-income countries (see, fascinating). The
question – Do you know why this is important and how it will make you money?
congratulations, your about to find out.
Let’s start off
by explaining there are many areas to waste management, recycling, circular
energy production etc. Here, I am predominantly going to be talking about
traditional good old-fashioned waste, rubbish, garbage, call it what you will.
You know what I mean. The dirty stuff.
Why? Because, I
am old fashioned and I like my rubbish old fashioned, plus, globally, only 25
percent of this type of waste is currently recovered or recycled. In other
words, it’s a growth area. How do we know this?
According to The World Bank, an estimated 2.01 billion tonnes of municipal solid waste was generated in 2016, this number is expected to grow to 3.40 billion tonnes by 2050 (under a business-as-usual scenario).
quantity of waste generated in low-income countries is expected to increase
more than three times by 2050. Currently, the East Asia and Pacific region is
generating most of the world’s waste, at 23 percent, and the Middle East and
North Africa region is producing the least in absolute terms, at 6 percent. By
2050, however, waste generation in Sub-Saharan Africa, South Asia, and the
Middle East, North Africa regions, is expected to approximately triple, double,
and double, respectively.
estimates for the MSW market alone are USD $410-433 billion per year. Estimates
for the total global waste management market are as high as USD $1 trillion
given it’s larger range (for example, industrial waste, wastewater and sewage,
sustainable packaging, and e-waste).
So, lots of rubbish is being generated and needs to be dealt with. But more importantly, the world population, as a whole, is growing, increasingly it is moving into towns and cities, it is also becoming richer. The impact of this is illustrated in the next few charts:
What do these
charts explain. In basic terms, amounts of waste are largely determined by: i)
population size; and ii) consumption patterns, these factors are controlled by
GDP per capita growth. In other words, as a population grows, so does the
amount of waste it creates. As that population becomes richer, consumption also
increases, again creating more waste (a 1 percent increase in national income
generates a 0.69 percent rise in MSW).
Similarly, as a population becomes richer, they, in general, move into towns and cities for work. As a result, waste collection becomes more of a priority, due to space and health concerns. These same concerns usually force governments and local councils to spend more cash on waste management. Cash which they collect from the same newly rich residents. Residents who do not want to live in slums, watching their children die of disease, like in the good old days.
governments introduce health laws and regulations about waste disposal, to
comply with global standards. These laws and regulations create barriers to
business entry and allow monopolies to develop for those waste management firms
who have obtained contracts from those same governments and councils.
What Do Waste Management Trends Mean To a
rather than focus on companies, like Amazon, who stuff products into boxes and
deliver them around the world, we should be concentrating on what happens to
that box once we throw it in the bin. Waste disposal means:
have a market which is growing in size;
have a market with steady, predictable, long term revenue streams, created
through city waste management contracts;
we have a market which will never go out of fashion (everyone has got to eat
importantly, for investors, as we have already mentioned, when people become
richer, they move to cities and spend more per family, they produce more waste.
However, this new waste is different. It is more expensive. Those empty IPhone
boxes and foil wrappers are more valuable and can be recycled. And, perhaps
more importantly, because we live in cities and put out our rubbish for
disposal, waste becomes easier to collect, things can be done more efficiently,
economies of scale kick in, larger companies take over responsibility, it’s
easier to get customers to pay up as they have bank accounts and best of all,
as they are richer you can force them to pay more for their waste collection.
management, done well, can create a business environment with a large moat,
that has constant demand for its products and the ability to charge customers
higher prices for the same thing year in year out.
That all sounds
great, a licence to print money. But there is always a downside or a voice of
caution. Here are a few issues:
reality, waste management is closely linked to economic cycles, the market is
largely driven by a combination of industrial output, revenue growth, and
domestic consumption. For example, the MSW industry was, likely everyone else,
hit by the Great Recession, with the EU most affected in terms of industrial
production and GDP forecasts. A recession can mean pricing pressure, a decrease
in treated waste volumes and landfill, plus emerging markets can be hit by
currency and inflation fluctuations. This is especially true when local
governments, in search of greater returns have exposed themselves to sovereign
debt investments or issued local bonds.
is often one of the largest single budget items for many cities. If EM
municipal government finances are strained, how likely are they to move away to
more expensive waste management?
about 37 percent of waste is disposed of in some type of landfill, 33 percent
is openly dumped, 19 percent undergoes material recovery through recycling and
composting, and 11 percent is treated through modern incineration. Waste
disposal or treatment using controlled landfills is almost exclusively the
domain of high- and upper-middle-income countries. Lower-income countries
generally rely on open dumping, 93 percent of waste is dumped in low-income countries
and only 2 percent in high-income countries. With no money and large areas of
cheap, empty land mass available, will this change significantly in some EM
adoption of new billing systems in developed markets, for instance, the
pay-per-weight system in France, is considered, by analysts, to mean downward
short-term pricing pressure, as they are designed to push customers to consume
less and/or recycle more. Although, longer term, it could also enable large and
innovative players to gain market share and improve their collection businesses
(fixed services paid for by the customers). Short term, these changes could
affect profit margins.
companies within waste management are becoming sizeable materials and energy
suppliers, due secondary raw materials recovery, waste-to-energy processes etc.
As a result, they are increasingly exposed to volatility in commodity prices, a
process that has to be managed. Some companies have a significant sensitivity
to an industry metric, adjusted operating cash flow to recycled materials price
fluctuations. Companies need to be more sophisticated around hedging strategy.
for retail investing purposes, most publicly listed waste disposal companies
are based in developed markets. Global waste management is still, generally,
locally based small family firms or perhaps run in house by the state or
municipal government. Many of the changes mentioned in this report have yet to
happen on a sufficiently large enough scale. It is still early days for investors
and hard for the general public to gain exposure to the global market fully at
in line with many other sectors we have previously researched, analysts anticipate
a two-tier growth story within MSW:
markets, particularly in Europe, face structural changes in the waste business
coupled with lower waste volumes and a shift, in what is called, ‘the waste
treatment mix’ (more recycling, less landfilling/incineration). These changes
will hit margins.
The EM MSW
market is expanding fastest on the back of: a sense of urgency due to climate
change and population growth, the need for a waste solution and profit
opportunities created from increased regulation, increasing barriers to market
entry, caused by economies of scale, new regulations etc. But in many places
these changes have yet to take place, at least in a way that global retail
investors can exploit. That said, analysts consider Asia and Latin America to
be the most attractive regions, with China and Brazil the biggest growth
So, I have been doing some searching through all the rubbish (I couldn’t resist that joke) and I have researched through a number of companies, around 30 or so. A large number belong in developed markets and are a US or European listed company. They are mostly the largest waste managers globally. Some feature in one of the few ETFs specifically designed to cover waste investing, or, were uncovered, in the natural cause of events, by myself, whilst carrying out my research. All are considered, by analysts, to have a high exposure to the waste management sector. To find the analysis of 15 waste management stocks from developed markets just scroll back to the beginning of this article.