First off, this is a longer post than usual, I am trying to get some more detailed work on the website to show my thought process to prospective employers, instead of just venting my frustrations! I am looking to join a new value investing firm, any help from you guys would be appreciated, email me at [email protected], or tweet @hardcorevalue for more information. I have 2 years experience with a very well respected value firm as an Analyst and have completed the CFA exams. I’m Canadian but available to move anywhere (I love traveling and learning new languages) and can start on working holiday/tourist visa. Traditionally, I seek to identify undervalued business that have competitive advantages and compound money at high rates of return with low risk of capital impairment but I also enjoy Ben Graham or special situation stocks, which is the one below. Let me know your thoughts, or if you have anymore research please contact me.
Let’s deal with the cash first. It’s very likely to be used for an acquisition, my biggest fear is it will be a related portfolio company to Second City. It would have to go to a shareholder vote but it is a big concern. As part of its proxy battle, Second City detailed their prior discussion on a major investment. In early 2010, Second City offered Bennett a deal in an infrastructure company called Rockford. It didn’t go through but was acquired by another company at a higher price. Rockford is profitable and all of the earn-outs have been achieved prior to the deadline. It appears as though the Second City deal would have been quite satisfactory for Bennett shareholders. There have been no acquisitions since, but Bennett’s new management continues to look (not just in the environmental industry) and they have the incentive to put the money to work.To determine why Bennett is not busier we have to look at the PCB market which is the main type of substance remediated by Bennet. PCB stands for Polychlorinated Biphenyls. They were first manufactured in 1929 for use in industrial materials, however PCBs are very difficult to break down (which is why they were so useful in finished goods) and are often found in the surrounding wildlife, particularly the surrounding soil and great lakes (and their fish). They were banned 30 years ago and began accumulating in PCB storage sites across the country (mainly in Ontario). PCBs are not allowed to be imported or exported across the border with the US, so their destruction is entirely a Canadian issue.
From talking to government representatives and industry insiders there appears to be two types of PCB numbers. The official numbers and real numbers. The real numbers are extremely difficult to estimate because PCBs can spread so easily and aren’t noticeable. I’ve talked to a number of insiders, and no one has any idea what the number is, just a general sense there are lots of PCBs remaining. One insider thought that there are over 20 sites far exceeding 20,000 tonnes per site of PCB contaminated soil and I have no reason to doubt that.
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Officially, the number of PCBs has been greatly reduced. Ontario has taken great strides to comply with the Federal deadline. The Pottersburg PCB dump site was recently closed. Pottersburg was a massive 113,000 ton facility and by far the biggest PCB dumpsite. The second biggest PCB dumpsite is surprisingly in Toronto, at 22,000 tonnes and is in the process of closing down. I obtained figures from the Ministry listing the number of PCB dumpsites both public and private in Ontario.
|Number of PCB Waste Storage Sites|
So in the last 7 years the number of PCB sites have been reduced by a massive 75%. However what is even more alarming for Bennett is Ontario’s official PCB numbers: Only ‘32,000 tonnes of soil and gravel’. And this was clarified that it still includes Schneider dump site numbers. Schneider has 22,000 tonnes that are being re-mediated. Therefore, officially there are only 10,000 tonnes of PCBs left in Ontario sites. This is bad news for Bennett, which has an annual capacity of 100,000 tonnes of PCB destruction. Although there may be hundreds of thousand of tonnes of PCB contaminated soil in Canada, officially most of it has been destroyed. And given the extreme cost of remediating soil, the official numbers are far more important. Perhaps there are many recently registered PCBs outside of Ontario, or the representative I spoke to had the wrong figures (although I made sure it was confirmed.) Nevertheless a report from Environment Canada on the national PCB database is due at the end of the year and will will clarify the figures from 2008-2011.