Tuesday, March 15, 2016

National Waste is on a Roll

National Waste Management (NWMH:  OTC) is not included in the waste-to-energy group of Crystal Equity Research’s Mothers of Invention Index of company’s turning waste of one kind or another into fuel or electricity.  However, National’s solid waste management practices are getting greener and worth consideration by environmentally conscious investors.  Based in central Florida, the company provides municipal waste collection and landfill management services on its home turf as well as in northern New York State.  One of its most recent waste collection contracts is in Citrus County, Florida, where the company has been tapped to process up to 20,000 tons of yard waste at a landfill in each of the next three years.

As a landfill operator National has implemented environmentally friendly practices.  The company added a portable ‘picking’ station at its landfill operation in Florida, which will enable more intensive waste recycling.  The new equipment makes it possible to ‘pick’ lumber, concrete, asphalt shingles, cardboard and shrink wrap, among other materials that can be recycled for fuel or other materials.

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Despite the 'green aura' around National, some investors might ask ‘why bother’ with National.  The company recorded only $1.8 million total sales in the twelve months ending September 2015, providing $136,300 in net income.  Reported sales and earnings might not very impressive, but National Waste turned every dollar of sales into $0.28 in operating cash flow in those twelve months.  Free cash flow after the bill for capital plant maintenance was $292,390, leaving National management with some serious ‘walking around money.’

Indeed, National management has been making the rounds among waste operations offered up for sale.  In early December 2015, the company acquired Gateway Rolloff Services, which provides portable dumpsters and pickup services to customers in the Odessa, Florida market.  National paid $450,000 in cash and 2.4 million shares of its common stock for Gateway.  National expanded its geographic footprint and added numerous valuable customer relationships with the deal.  Most importantly Gateway could contribute an estimated $2.3 million to National’s top-line over the year and deliver $825,000 in cash earnings.  Gateway’s EBITDA margin of 36% is somewhat better than that of National near 28%.  Management expects some operating efficiencies from the deal as National integrates Gateway’s dumpster roll-off services with its own low-cost landfill capacity. 

The roll-off service deal is not the first for National.  In last October 2015, National completed the acquisition of Waste Recovery Enterprises, LLC, a waste processor and disposal facility serving residential and commercial customers around Bainbridge, New York.  Waste Recovery is expected to add $1.5 million in sales to the mix in the first year after the deal.  The addition of Waste Recovery put National close to its goal of becoming a major regional player in waste collection and management.  Waste Recovery’s gross profit margin of 45% is a bit higher than that of National at 41%

With these two new operations added to the mix, National’s financial reports beginning in the quarter ending December 2015, could look much different than earlier.  We estimate the new revenue run rate for National Waste is near $5.6 million, providing as much as $1.8 million in cash earnings.  Depending upon the amortization expenses related to the two acquisitions, reported earnings should be significantly higher as well.

An anticipated increase in sales and earnings should be a good enough reason to bother with National Waste Management even if it is not the usual ‘green’ company.  The stock looks attractive as well.  NWMH is priced more like an option on management’s ability to execute on its growth-by-acquisition strategy than it is on anticipated earnings.  The stock has traded downward since the two recent acquisitions as if the deals might still be in question or added revenue and earnings would be an unwelcome burden.  Granted there are risks in a stock quoted on the Over the Counter Bulletin board and trading only a few thousand shares per day.  Yet there appears to be a disconnection between the National Waste Management’s stock price and its fundamental accomplishments. 

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

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