Deep Green Make-over

Deep Green Waste & Recycling (DGWR:  OTCQB) has announced plans to acquire an environmental remediation and services operation at undisclosed terms.  It is will be the company’s second deal of the year as the company’s leadership attempts a corporate make-over.  In March 2021, the company completed the acquisition of Amwaste, Inc., a provider of waste handling and recycling services in Alabama.  Now Amwaste represents Deep Green’s principal operation after exiting its recycling equipment business in 2018.  The re-entry to the waste industry as a service provider is an interesting strategic shift that begs investors to take a look at this emerging company.

The last financial report for Deep Green detailed the quarter ending March 2021, and gave investors a first glimpse of revenue from Amwaste.  The transaction was completed six weeks before the quarter close.  Based on the $24,837 in revenue recorded during those six weeks, the appears the operations has an annual top-line run rate near $215,000.  Of course, with the corporate expenses of a public company with its layers of executive and administrative functions, the operating loss was significant at $131,709.

Nonetheless, Amwaste appears bring in a positive contribution margin, giving some home for profitability in the future.  The pending acquisition has been characterized as a profitable business the revenue in excess of $1.25 million annually.  While no specifics have been disclosed on financing for the deal, management has made claims in the financial press that strategic relationships are being cultivated to support this and future deals.

Management has given interviews with financial media in recent weeks suggesting that an effort is also underway to expand Amwaste’s services to additional communities.  This effort could deliver significant growth.  The company recently arranged for working capital that has apparently been earmarked for additional trucks and containers for the collection and recycling service.

Deep Green has quite a bit to prove.  Failure seemed to be the outcome for the first attempt to acquire operations and fill this public shell.  Waste handling services have been remarkably successful  -  largely because humans are a filthy bunch that is consistently generating copious amounts of waste.  The recycling segment, on the other hand, has seen some ups and downs as energy and facility costs remain stuck in an upward trajectory while the value of recycled material has fluctuated.  Equipment suppliers to the recycling industry have shared the same pressures.  

Having made a switch from the laudable but less reliable recycling equipment business, to the more consistently successful business model of waste collection services, Deep Green may eventually find its is indeed deep in the green of profits.  Investors are cautioned that poor execution by management can result in losses and failure of a company in an otherwise healthy sector.

 

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.