Secure Waste Infrastructure
A value stock with a high quality business underneath
Disclosure: I own stock in Secure Waste Infrastructure. This is not advice of any kind. Due your own due diligence.
Secure Waste Infrastructure Corp (SES) presents a notable investment opportunity within the stable and lucrative sectors of waste management and energy infrastructure. Initially positioned as an oilfield services company, SES has effectively transformed into a regional leader now trading around 3 billion CAD market cap on the Toronto exchange. It leverages its significant infrastructure assets, recurring revenue streams, and strong operating margins to create shareholder value. Despite these advantages, SES currently trades at a significant discount relative to industry peers, primarily due to market concerns regarding its exposure to the oil sector, seemingly a Mr. Market misnomer to some extent. The below succinct discussion and analysis examines SES’s robust financial position, aligned management incentives, strategic acquisitions, and clear growth strategies, underscoring a considerable valuation opportunity. Is it a compounder at value prices? That will be for you to decide.
Company Overview and Business Model
Taking a look closer at the sources of operating cash flows (EBITDA), you can see that the business has multiple business units that are related but distinct in some ways. The company has taken actions over the last decade to improve the quality of the revenue streams in terms of where the business grows.
SES primarily focuses on collecting, processing, recycling, and disposing hazardous industrial waste, notably from the oil and gas industry. Its infrastructure includes critical assets such as waste processing facilities, specialized landfills, pipelines, terminals, and storage sites, which are integral to its operations. Approximately 80% of SES’s waste volumes derive from recurring production-related waste streams, offering substantial protection against fluctuations in commodity prices. The infrastructure assets SES has built are capital-intensive and challenging for competitors to replicate (for regulatory, technical or plain old NIMBYism), thereby creating substantial entry barriers.
“high capital intensity companies can also be attractive, especially where the capital requirement confers stability and deters entrants.”
― Lawrence A. Cunningham, Quality Investing: Owning the Best Companies for the Long Term
The pivotal 2021 merger with competitor Tervita significantly expanded SES’s operational scope and geographic presence, significantly increasing its market share. The successful integration and optimization of Tervita’s assets have generated considerable operational efficiencies, allowing SES to elevate its EBITDA margins to over 30%, considerably surpassing typical industry benchmarks.
Additionally, SES’s business model is complemented by a growing metals recycling division, providing diversification beyond traditional oil and gas waste streams. The strategic expansion of its recycling operations through acquisitions has further bolstered the company’s market position and growth potential.
Highlighting again, the EBITDA makeup is claimed to be 80% tied to highly stable sources, meaning the 20% from drilling and completions will be volatile and tied to commodity prices.
Management Team and Incentives
The management structure at SES is designed to strongly align executive incentives with shareholder interests. Approximately 85% of the CEO's total compensation package is performance-based, linked to clearly defined metrics including corporate financial targets, safety standards, and strategic objectives. SES employs Performance Share Units tied directly to shareholder returns and discretionary free cash flow per share to ensure executives remain highly motivated toward creating shareholder value.
Furthermore, SES mandates significant shareholding requirements for its senior management team (five times annual salary for the CEO), further aligning executive interests with those of investors. While insider ownership excluding major shareholder TPG Angelo Gordon (16.1%) is relatively modest, robust long-term incentives ensure executive decisions remain closely aligned with long-term shareholder value.
Industry Landscape and Competitive Advantages
I previously wrote an overview of the industry quality and dynamics of the big public players in the industry. Check it out for more detail.
The waste management industry in North America has exhibited consistent annual growth of approximately 5-6% and is projected to continue this stable trajectory due to increasing regulatory oversight, environmental standards, and economic expansion. High barriers to entry, including strict regulatory frameworks, considerable capital expenditures, and specialized infrastructure requirements, have fostered a market dominated by a limited number of large operators.
SES’s extensive operational footprint within the Western Canadian Sedimentary Basin (WCSB) positions it as the premier third-party provider of industrial waste management services in the region. Its competitive advantages include unmatched operational scale, significant customer loyalty, and strong pricing power. Additionally, SES benefits from broader industry trends that see increasing outsourcing of waste management by companies prioritizing environmental compliance.
Despite these robust fundamentals, SES is currently undervalued, trading at roughly