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Tim Boreham - Criterion


For Tox-Free Solutions, there's plenty of money in muck

by: CRITERION
From: The Australian
May 01, 2013 7:45AM

Tox-Free Solutions (TOX) $3.28 (trading halt): Having sealed an $85 million cash deal to sell their waste-management business to Tox, Brisbane stock-car enthusiast and polo champ Ron Wanless and his son Dean face just one irritant: renewed scrutiny from the BRW Rich List's sleuths.

For Tox, it's another example of there being money in muck.

And with the purchase expected to be earnings-positive from day one, it's a case of instant cash in the bottom of the dumpster. Queensland's second-biggest commercial waste manager, Wanless boasts 8000 customers and last year made earnings before interest, taxes, depreciation and amortisation of $14.6m on turnover of $62m.

The purchase diverts the focus on Tox as a cleaner-upper for the West Australian resources sector to a more generalist collector of waste including municipal refuse (a low-margin sector Tox has been reluctant to enter).

Wanless also does portable loos as a sideline. As Kenny once said, no one's ever impressed with his chosen trade . . . until they see the fat cheque to be banked by the Wanlesses for a business founded only 13 years ago. To date, Tox has derived 46 per cent of its revenue from mining and energy companies; after this deal the proportion falls to 36 per cent, with the commercial waste component climbing from 12 per cent to 25 per cent. Given what's happening to mining services stocks, it's an ideal time to distance itself from the sector.

Tox expects the deal to be (proforma) 8 per cent earnings accretive in 2012-13. House broker Morgan Stanley tips collective EBITDA of $57m, 25 per cent up.

The acquisitive Tox is funding the purchase, its biggest to date, via a $43m accelerated placement at $3.16 a share, a modest 3.7 per cent discount. Yesterday's fixed-price raising was indeed accelerated, with the reps from joint lead managers Morgan Stanley and Evans & Partners scurrying back from their risotto and riesling to secure client allocations.

Criterion had Tox as a long-term buy at $2.08 after the company moved to buy the business assets of struggling Dolomatrix for $58m. We maintain the call, with a preference for Tox over Transpacific Industries (TPI, 97c).

http://www.theaustralian.com.au/business/opinion/waste-not-want-not-for-the-wanless-clan/story-e6frg9lo-1226632642189