Mo-Bruk (Market cap PLN 1.36bn / EUR 302.2m) is the market leader of the Polish waste management sector, which is highly promising as Poland is still far behind other EU countries when it comes to waste processing (e.g. 42% of Polish waste is dumped on waste landfills vs. 1% in Germany) and has to comply with the EU “Green Deal”. In order to increase the share of processed & recycled waste, the government is increasing the Marshall Fee, which is the price per tonne of dumped waste (the higher it is, the more waste management companies can charge for their services). The Marshall Fee currently equals PLN 301.84/tonne and since 2018 has increased at a CAGR of 29.2%.
Compared to its listed peers Geotrans, Krynicki Recycling and Grupa RECYKL, Mo-Bruk is able to process c. 95% kinds of waste. Also, as the only listed company in Poland it provides waste incineration, solidification and stabilisation in own facilities and sells alternative fuels and construction material. Mo-Bruk, whose roots go back to 1985 and which is controlled by the Mokrzycki family, has grown its sales and net income at a CAGR of 35.2% and 164.8% respectively since 2016. After investments of c. PLN 200m in the last few years, it operates own facilities in 5 locations in Southern Poland, where most of Polish industry is based.
In 2019, Mo-Bruk’s segments had the following share in the company’s total sales: (1) Solidification and stabilisation of inorganic waste (mainly from chemical and construction companies) – 45.4% (2) Production of alternative fuels (mainly from car manufacturers) – 22.2% (3) Incineration of toxic waste (mainly from hospitals, drug producers and refineries) – 32.3%. The end products of waste incineration/solidification/stabilisation – heat, alternative fuels and cement granules – are sold e.g. to cement producers, utilities, construction companies and mines. Thus, the company’s business model perfectly fits into the concept of the so-called “circular economy”, which is the main objective of the EU “Green Deal”.
In 2019, Mo-Bruk generated revenues of PLN 130.6m (+41% y-o-y), an EBITDA of PLN 58.7m (44.9% margin) and net income of PLN 40.1m (30.7% margin). 7.5% of sales stemmed from abroad compared to 6.3% in 2018. In 2019, the company employed 233 people on average.
Between January and September 2020, the company’s sales reached PLN 122.6m (+40.9%). EBITDA equalled PLN 69.8m (+102.2% y-o-y; 56.9% margin) and net income PLN 52.9m (+122.2%; 43.2% margin). Operating and free cash flow reached PLN 41.5m and PLN 47.7m respectively. As of 30/09/2020, Mo-Bruk had net cash of PLN 11.9m.
Summary & Conclusion
Mo-Bruk is a market leader in a sector, which requires high initial investments. Moreover, as the shadow economy still accounts for 30-40% of the waste management sector in Poland, companies, which want to provide respective services, need government permissions. In addition, public clients usually prefer to work together with companies, which have a good track record. Thus, we believe that in Poland Mo-Bruk will remain the undisputed market leader at least in the next 3 years.
Another reasons, which make Mo-Bruk an attractive investment, are the low capacity utilisation of its facilities (c. 40% currently); the increasing Marshall Fee in Poland, which in our view will continue to increase by 5-10% over the next 2-3 years; and its prices, which are >2x below those in Western Europe. All of the above should allow Mo-Bruk to grow its revenues significantly in the near future and to maintain a very high profitability and cash generation. The volume of waste, which is produced in Poland every year, equals 114.1m tons and grows roughly in-line with GDP.
Our expectation for net profit in 2020 is PLN 79m (+197.1% y-o-y), which implies a P/E of 17.1x at present and PEG ratio of 0.09. While in our view the current broker estimates for 2021E (Revenues: PLN 240m; Net income: PLN 92.9m) are realistic, we believe that the market forecasts for 2022E (Revenues: PLN 273m, Net income: PLN 101m) are too conservative. We expect that Mo-Bruk will pay out a dividend both for 2020 (exp. DYield = 3.6%) and the following years. The company’s dividend policy foresees the pay out of 50-100% of its yearly net profit.
Disclaimer: The author of this analysis owns shares of Mo-Bruk himself