Tuesday, January 08, 2008

E-Scrap

E-Scrap - the word came up at a dinner gathering of friends the other evening. Some in the group were surprised to learn the new term for electronics refuse. Think about it - how often do you get a new cell phone or computer? In my case, I use a cell phone for about eighteen months and then I upgrade to a new model. Laptops - I move on in about two years. My current desktop is four years old. Being a frugal person, I imagine that the average life of these three electronics items - things that are used commonly by most professionals - is much shorter.

That is a lot of electronics junk potential going into landfills. Add to that the electronics products used in industry and manufacturing. Indeed, the National Recycling Coalition estimates over 350 million computers expected to become obsolete in the next five years. The typical computerized electronic device is composed of approximately 40% metals, 40% plastics and 20% ceramics and trace materials - most of which is recoverable and reusable.

Thus it is not surprising that an entire industry is evolving to collect, process and recycle e-scrap. Hundreds of recycling companies and equipment suppliers showed up in Atlanta, George in October 2007 for E-SCRAP 2007 - the North American Electronics Recycling Conference.

A review of the E-SCRAP 2007 exhibitor list demonstrates that this sub-sector of the recycling industry is still a playground for small, privately held operations. Investors wanting to get in at the ground floor - to use the popular market vernacular - most likely means finding a private offering.

Among the private e-scrap recyclers RBRC (Rechargeable Battery Recycling Corp.) stands out in the crowd. It’s smart, easy-to-navigate web site offers information for consumers on recycling and cool wall paper and screensaver downloads (all free of course) featuring color-rich pictures of endangered species posing with e-scrap. The red-eyed tree frog perched on a cell phone is my favorite.

One significant player in the electronics recycling business is definitely not open to investors. UNICOR Federal Prison Industries, Inc. is expanding its e-scrap services. Prisons have apparently come a long way from license plate manufacturing!

An obvious public company play is Waste Management, Inc. (WMI: NYSE), which is probably ahead of most in the waste management industry in terms of collecting and recycling e-scrap. Its subsidiary, WM Recycle America, is based in Texas and operates e-waste processing centers and drop-off locations around the country. WMI is a mid-cap stock with a 1% dividend yield and 15.4 times PE.

ONEPAK, Inc. (ONPK: CNQ) is positioning itself as a “cleantech” shipping and logistics service to electronics manufacturers and retailers. The company is headquartered in the U.S. but trades on the Canadian Trading and Exchange System. ONEPAK has been raising money through private placements, suggesting investors could face some dilution as the company seeks growth capital. Since ONEPACK recently signed arrangements with DELL Computer and OfficeMax, the risk might ultimately be rewarded.

Otherwise investors need to go outside the U.S. for e-scrap investing. New Boliden (BOL: SWE) in Sweden both and Xtrstata (XTA: LON or SWE) are two significant metals exploration and mining concerns that have stepped into electronics recycling. Unfortunately, the stocks of both companies trade on the price of metals commodities and do not appear to garner any premium for the extra value that might accrue from recycling low-cost waste metals.

SIMS Group (SGM: AUS) in Australia claims to be the largest electronics recycle in the world, processing 200 million pounds of electronic scrap annually. SIMS has four recycling centers in Canada and the U.S. SIMS revenue grew 47% in 2007 over the prior year and increased its cash conversion ratio to 5.6% - two records that should impress investors.

SIMS could get some competition as awakening consumers add to the piles of electronics that are available for recycling rather than sending the cast offs to the landfill. It seems logical that more recyclers will be attracted to the industry. SIMS along with WMI looks like it is the best positioned to consolidate this highly fragmented but fast growing industry.


Neither the author of the
Small Cap Copy web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.



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