The problem for mine, Mik01, is that the business on just about...

The problem for mine, Mik01, is that the business on just about any metric i view as important has been getting worse for the last 5 years. I bought TOX years ago after it had turned itself around from the very unsuccessful early 2000's days, and became a highly specialised, niche player in high-margin and often monopoly-type waste processing, i.e. thermal desorption. Back then (2005-2007) it was a high ROE, strongly cash generative business with high operating margins and relatively low fixed asset replenishment (i.e. capex) requirements, with monopolies in its WA processing plants for certain types of waste (i.e. hazardous and liquid wastes). It's nothing like that, now.

From FY2007 - 2012:
- EBIT margins have declined every single year, from ~32% to 13%.
- ROE has declined from 22% to 12%
- The business has been sucking in huge amounts of capital, i.e. not generating free cash. Basically, their operating cash flows have covered their PPE expenditure, i.e. every dollar of cash has been reinvested into operations, and on top of that they've made ~$110m acquisitions even prior to Wanless (which is why they've been forced to repeatedly raise equity).

None of this is a coincidence, though. It's the byproduct of a deliberate strategy they've had to 'grow', so grow they have. Unfortunately for shareholders, this growth is into increasingly low margin, highly capital intensive, competitive waste contracting businesses (such as Wanless, which you pointed out yourself in another post operates in highly competitive markets up against numerous large operators).

Now, every business has a value, and TOX is clearly not worth nothing. So, what is it worth? Well, for me, that depends largely on how much free cash it throws off in a steady state. In FY12 their D&A charge was $16m and they spent $22m capex on replacing PP&E, so i'll give them the benefit of the doubt and say that on last year's results they'd need $20m (a rough midpoint) capex to stand still. They generated $29m operating cash flows, meaning after stand-still capex requirement, the business generated $9m last year. Assuming margins and capex as % of sales in FY13 is broadly equal to FY12 historics, let's say the business is now 1.5x bigger post acquisition of DMX and Wanless, so they'll do $15m free cash flow in FY14 (very rough, but there's nothing in the 1HFY13 figures to suggest margins or cash flow generation will improve post these acquisitions). So, that's a free cash flow of $15m in FY14 / market cap of $440m, or a FCF yield of 3%. That's not sufficient to compensate me for the risk of owning this company, and i'm not convinced there's as much organic growth as others might be. What i suspect we'll see over the next 2-3 for TOX is that some of their more lucrative (read: higher margin) contracts won in the resources/mining/energy spaces will roll off, and they'll struggle to re-contract on terms as generous as those previously. At the end of the day, they are contractors providing a service, and they won't be immune to what's happening to most contractors at the minute servicing a mining and energy sector now intent on saving cash.

Your raising of TPI as an example of a company with a moribund, dysfunctional culture is particularly interesting vis-a-vis TOX. I'm sure you're aware that a large part of the reason TPI's culture and operational expertise is so poor is because they grew so quickly in the early-to-mid 2000's and never paid sufficient attention to fully integrating the acquired businesses (their capital structure merely exacerbated the problem). TOX, to date, appear to have done a better job integrating acquired operations compared to TPI, but i'd have concerns over any company which has grown its revenues 10-fold over the laat 5 years, largely via acquisition, as TOX has. I can't see how they can credibly claim 'synergies' (either revenue or cost synergies) if their EBITDA margin has declined every year for the last 5 years - this is of major concern and suggests they aren't significantly improving acquired operations and, in fact, may be doing the opposite. As is the case with most acquisition-hungry enterprises though, it's never quite 100% clear what's going on until the music stops, the business stands still for a few years, and the broader market realises the underlying growth rate is hardly as impressive as has been made out.

I've held the above view on TOX for quite a while which is why i sold in early 2012 (the DMX acquisition was the last straw for me). I have absolutely no qualms at all with the fact that, post me selling, it's traded up ~50% - that happens from time to time - but my reasons for selling then are even more relevant today. Over the long term, a stock's price will accurately reflect its value, but over shorter time periods prices often deviate a fair way from fair value (in both directions). I've made it pretty clear what i think the current relationship is between TOX's price and its value, and good luck to holders with opposing views - that's what makes a market.