800 Super is a waste management company in Singapore. It has been in business since 1988 and was publicly listed in 2011.
Large public sector contracts for waste collection, recycling, street cleaning, and lansdscaping tend to be awarded for 6 to 8 year terms and smaller, private and quasi-private sector contracts are awarded for one to three year terms.
800 Super is one of four licensed, larger players eligible to bid for public waste management contracts.
One might, as a first cut, weigh up the non-cyclical nature of the sector, ROIC, the counterparties etc and come up with a valuation that approximates 2x net operating assets less net debt as fair value for the equity, or $0.65/share. Or one could arrive at the same figure by using 9.5x trailing earning. Or one could compare 800 Super to its very close comparable peer, Colex Holdings, and come to the same conclusion. In any case, that's not a bad place to start.
800 Super has been awarded (and re-awarded) major public sector contracts that are priced more attractively than the contracts that it had been operating under.
For example, the Ang Mo Kio waste management contract was re-awarded to 800 Super in January 2014 and runs until September 2021. The predecessor contract (2006-2013) paid $1.05 million per month whereas the current contract pays $1.74 million per month.
The Integrated Public Cleaning (or street sweeping) contract for the North East region, since lost, paid $0.52 million per month and has been replaced by the Integrated Public Cleaning contract for the North West region which pays $1.35 million per month.
Since the cost of services -- supplies, disposal charges, sub-contractor fees, and labor costs -- haven't changed by nearly as much, margins should expand as should earnings.
So far, we have seen this
drive margins as follows
and the investment case, such as it is, is that the next year should see the continuation, and indeed acceleration, of this trend:
If it turns out that way then 9.5 x $18 million in earnings values the equity at $0.94/share.
If it doesn't work out that way for whatever reason*, 2016's earnings at 2H 2015 margins will come in at ~$16 million and the equity, at a depressed multiple of 8x may be worth only $0.71/share.
So maybe 50% to $130% capital appreciation potential plus some dividends collected.
Finally its waste-to-energy plant ought to be functional in 2017 and should, if nothing else, help cut its cost of waste collection services and therefore act an future driver of margin expansion.
edited to correct a table on 11/23/2015
*(I say for whatever reason but the wild card to watch is clearly labor cost. Singapore is labor constrained and one does see occasional spikes in labor cost as occured in 1H 21015)
Disclosure: I own some shares in 800 Super Holdings