My analysis for BEV!Well, the news today for Bennett sure put me in good spirits & has increased my enthusiasm for the stock even further. I am happy for all those who did well over the past few weeks as the stock moved up. I wanted to share some analysis with the board.
The news today changes many things including the potential earnings projections moving forward. It seems obvious that most if not all the analysts that cover the stock will raise their estimates for FY2004 & beyond now that there is better visibility in the processing capacities of the company. I would also expect that most would therefore raise target price & multiples as well due to higher growth rates & a more stable, predictable revenue & earnings stream over the next 3 years.
The ttm EPS is currently $0.86 (all numbers in $Cdn) with estimates by Cdn analysts at (before news) FY2003 $1.17 & FY2004 $1.93. For Q3 the estimate is $0.39 & Q4 $0.42. Company guidance for FY2003 is actually $1.20-$1.30. Let’s say without NB online until July 1, 2004 & then it ramps up gradually and has a utilization factor of 70% for its first 12 months starting July 1, 2004. I am not sure how the consulting fees & other rev’s work out but let’s say that the average EPS for each of the next 4 Q’s is $0.39 allowing for some margin of error & remembering that they raised fees per ton by 15% this year. The EPS for the next year would be $1.56 or EPS growth of 81%. Then NB comes on stream for 70% utilization in the following year & say this adds about $0.90. One would think that synergies could add further to this figure. That gives us EPS growth in the second year from now of 58% or $2.46 which is nearly triple or 198% higher than the current ttm EPS. Today the multiple is 25.3 giving a very cheap PEG both trailing & forward. The same multiple in 2 years would give us a gain of 198% in the next two years if the estimates I have given above were to be realized. A multiple of 30 to be more inline with the high growth rates & margins would give us a price of $73.80 & gain of 239% in 2 years time.
It is possible that the numbers may not be achieved but it is also possible that they will do better. There could even be more capacity and/or contracts available by then. Remember they have a 5 year contract with GE Canada which is estimated to have significant potential & could be extended for many more years after the first 5. It has been stated by BEV & confirmed by analysts who have visited the NJ site that there is quite likely additional work beyond the $200M contract that just started.
The risk might be that an incinerator breaks down but this is temporary & does not take away from the bigger picture. Inherent risk in an environmental company? I suppose but show me a stock & I can show you some associated risk within it. They all have their inherent risk factors. On the other hand, show me another stock with a P/E of 25, EPS growth rate of 81% for the next 12 months, ROE of 33.9%, Net Margins of 26.9% & no net debt. The margins should improve moving forward due to price increases, better capacity utilization & higher margin consulting fees.
In summary, even though the stock has risen handsomely this year, it still offers great risk/reward from here based on what is known. The stock still has significant long term potential as the company grows & it moves up into the radar screens of the institutional money. Lastly the strong cash flows & high margins ensure minimal dilution as the growth is internally funded. Good luck to all, Cheers!!!
https://investdb.theglobeandmail.com/invest/investSQL/gx.estimate_prof?symbol_in=BEV-T&company_id_in=156398