A reputation trashed... an opportunity stashed

2010-05-06 00:00

<p>IF THE INCREASINGLY audible whispers from my little band of associates is anything to go b(u)y then small waste management company Interwaste is probably worth a closer look. It's always difficult punting companies where a corporate reputation has largely been rubbished. In that regard, Interwaste hasn't enjoyed the steadiest showing on the AltX, having fallen short of initial forecasts and then not quite sustaining its comeback strategy. </p>
<p>The year to end-December 2009 wasn't exactly a bed of manure either, with clients cutting back production (which means less waste) and the onset of some vicious competition (which prompted Interwaste to leave some margin squashing opportunities on the table). The numbers don't make for pretty reading: turnover was down 14% at R407m, taxed profits down more than a third to R26m and short-term debt (overdraft and borrowings) topping R75m. </p>
<p>But there were some positives. Operational cash flow was a reassuring R40m and the gross trading margin was held above 40%. While there was a significant cash outflow, a hefty amount was spent on bolstering the underlying businesses (which encompass waste management, compost manufacturing and landfills). </p>
<p>So it's encouraging to see Interwaste geared for growth, especially since the profit momentum picked up significantly in the second half of its 2009 financial year. </p>
<p>While it's clear clients stretched their payment terms in 2009, Interwaste has reported net cash outflow has been stabilised and that cash was generated in the first months of its 2010 financial year. In addition, it started to see growth in revenues from existing clients, which hopefully also means there will be some success in attracting new clients and creating new sources of revenue. </p>
<p>Considering Interwaste - which has a tangible net asset value of 63c/share - is trundling along at a historic earnings multiple of eight times, there can't be too much downside if we can rely on management's comments about its prospects. </p>
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