Transpacific acquires landfill

Transpacific's share price has fallen a further 5% after announcing the acquisition of Melbourne's largest landfill – the Melbourne Western Landfill – from Boral for $165m. The cost includes a $15m upgrade and Transpacifc will pay Boral a 'fixed and volume based royalty payments amounting to approximately $15m per annum initially'.

'[I]nitially' sounds a bit ominous, but the purchase is consistent with chief executive Bob Boucher's strategy and the amount of waste Transpacific processes at its own landfill sites in Melbourne will increase from 25% to 65%. Given Transpacific trades on an enterprise value to EBITDA (earnings before interest, tax, depreciation and amortisation) multiple of around five, the ticket price multiple of 9.3 is steep. But Boucher believes he'll have a bargain by 2017 once the company shifts away from sites that are set to close in 2016. The Melbourne Western Landfill has between seven and ten years of capacity, but regulatory approval could increase capacity for another 50 years.

We're still surprised Boucher hasn't announced any impact on profits from the slump in the oil price. We'd be delighted if that were the case, but it would be surprising. With the share price falling 8% since Transpacific under review from 14 Dec 14 ($0.85 – Under Review) we're sticking with UNDER REVIEW until we see the interim results in February.

Note: The model Income Portfolio and Growth Portfolio own shares in Transpacific Industries.