Ravi Ramenani's  Instablog

Ravi Ramenani
Send Message
My goal is to find companies that can employ large amounts of capital at significantly higher rates of return for longer periods of time trading at a reasonable price. I realized my passion for economics and finance in 2007 during a long conversation with a friend about currency exchange rates... More
  • CVA And WM Update 1 comment
    Feb 18, 2014 11:40 PM | about stocks: CVA, WM

    This is a follow up article to : seekingalpha.com/article/1955081-one-man...

    WM released their 10K today (02-18-2014) and it sheds some light into some of the difficulties of Waste-to-Energy business. They took an impairment of ~$625M in their waste-to-energy unit. As an investor in CVA, the largest waste-to-energy company, I would like to understand if the problem is in the sector or business model.

    For starters, Wheelabrator, waste-to-energy unit of Waste Management, was acquired in 1990 and WM increased it's capacity all through 90's and it has hit a snag in 2000's. From 2003 to 2013 amount of waste processed was stagnant at 21,000 tons-per-day (tpd) and operating income decreased from $220M to $100.

    Reasons for the latest impairment are:

    1) Lower available waste to process

    2) Increased maintenance as the facilities get old

    3) Lower expected energy prices due to natural gas and

    4) Availability of other processing facilities.

    Now comparing these issues to CVA

    1) CVA runs ~56% of their capacity under put-or-pay model with municipalities who are obligated for ~20 years

    2) CVA has also talked about the increased maintenance of their facilities

    3) CVA enjoyed higher energy price contracts in the past which are coming due and could affect their future income

    4) WM is reviewing to close down few facilities which could be a big win CVA in those areas.

    One the whole, this shows how waste-to-energy management could be a tough business with CVA could be emerging as a winner.

    Disclosure: I am long CVA.

    Stocks: CVA, WM
Back To Ravi Ramenani's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (1)
Track new comments
  • Chapman Matis
    , contributor
    Comments (16) | Send Message
    Hey Ravi,


    Always enjoy your research, thanks for a good update. I have something I'd like you to look over, considering your understanding of the current WtE environment. Here's the link
    22 Feb 2014, 04:14 PM Reply Like
Full index of posts »
Latest Followers


More »

Latest Comments

Most Commented
  1. CVA And WM Update ( Comments)
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.