GFL Environmental Inc T.GFL

Alternate Symbol(s): GFL

GFL Environmental Inc. is a Canada-based diversified environmental services company. The Company is engaged in providing a comprehensive line of solid waste management, liquid waste management and soil remediation services through its platform of facilities throughout Canada and in more than half of the U.S. states. Its segments include Solid waste, which includes hauling, landfill, transfer and material recovery facilities (MRFs), and Environmental Services, which includes liquid waste management and soil remediation services. Its services include residential waste collection, commercial waste collection, industrial cleaning services, dumpster rental services, liquid and hazardous waste and soil remediation services. It offers a variety of services for home, such as waste collection, recycling collection, bulky and large item collection and vacuum trucks. Its services are provided through the Company and its subsidiaries and a network of facilities across Canada and the United States.

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GFL Environmental Inc

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Post by retiredcfon May 31, 2024 8:39am

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Post# 36065944

RBC

May 31, 2024

GFL Environmental Inc. Optimizing the portfolio

NYSE: GFL | USD 31.06 | Outperform | Price Target USD 46.00

Sentiment: Neutral

What happened – According to a media report (WWJ Newsradio 950, a regional news radio station in Detroit, MI), which was confirmed by the company, GFL is selling a portfolio of 73 municipal collection contracts in South East Michigan for US$50MM (~C$70MM). The portfolio represents US$150MM (~C$205MM) of annual revenue, carries a ~high-single-digit % Adjusted EBITDA margin (implies transaction multiple in the ~3.5x-4.5x range), and represents a subset of GFL's business in the Michigan market. The transaction also includes ~500 trucks, and our understanding based on information from the company is that a significant proportion of these trucks are older rear-load models. GFL indicated it will use the proceeds from this sale to pay down its revolver. The media report indicated that the buyer of this book of business is Priority Waste, who would now become the largest residential provider of garbage pickup in Michigan. The transaction is expected to close June 30.

Initial thoughts: Neutral to modestly positive – Recall that at calendar Q1/24 reporting, GFL management noted they were looking to exit ~$150MM of revenue that was 'low-margin' residential work. Even before getting into the financial benefits, we view this disposition favorably as the company was able to monetize a book of business that they would likely not have been interested in renewing given the lower margin profile relative to the base business (i.e. the company was able to monetize business that they likely would have exited during the renewal process). We believe this transaction provides for a modest amount of cash flow that will be used to partly pay down drawn revolver, improves GFL's margin profile (see below for details), and highlights management's commitment to the de-leveraging plan. As noted above, the book of business being sold carries a ~high-single-digit EBITDA margin profile. Given that the transaction is expected to close on June 30, we estimate this should result in a ~C$100MM reduction in H2 revenue (half year impact on the full year revenue of ~$205MM), and should be +20bps accretive to the current margin guide. Recall that management's commentary at Q1/24 reporting already pointed to a potential upward revision to full-year guidance at Q2/24 reporting.