Money Talks: Recycling is the ‘thematic of our time’, and these stocks are set to benefit
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Money Talks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to see what’s hot, their top picks and what they’re looking out for.
Today, we hear from Lee Iafrate, founding chairman of Melbourne-based boutique investment firm Armytage Private.
Iafrate says plastics recycling and waste management is ‘the thematic of our time’.
The momentum around reducing single use plastics consumption or banning it outright is mounting.
Right now, just 12 per cent of the 103kg of plastic waste generated per Australian every year is recycled, mostly overseas.
(That’s actually an improvement on 2017, when just 10 per cent of the 3.5 million tonnes of plastic products sold in Australia were recycled.)
In August, PM Scott Morrison announced new funding toward “innovative projects” to grow the domestic recycling industry and reduce plastics pollution.
“The prime minister is now on the front foot,” Iafrate says.
“We have countries around the world now issuing edicts to ban the use of single use plastic.
“It’s a big political issue that isn’t going away; and once it gets political it gets government attention.”
This is nothing to do with saving the world, Iafrate says.
“This is just about managing the rubbish that we generate so it doesn’t pile up on our doorstep,” he says.
“These are three stocks that we have been substantially invested in and have backed for long time.”
Market Cap: $4.11 billion
“Cleanaway is now a conglomerate focused on recycling, waste collection, and waste treatment. As the big boy in town it has a very powerful market share.
“The latest result got an unenthusiastic response from the market, but it shouldn’t have. It was steady result with no negatives.
“This stock will continue to grow as an Australian market leader.”
Bingo Industries (ASX:BIN)
Market Cap: $1.55 billion
“Bingo had a pretty flat, poor result [in FY19].
“Their waste collection process is predominantly driven by the construction industry, so they are impacted by any downturn in that market.”
Secos Group (ASX:SES)
Market Cap: $20.1m
Bioplastics smallcap Secos have been around for a long time with a chequered history – launching from one little capital raise to another, Iafrate says.
But they’ve finally been able to settle down with the right management and board structure in place.
“We’ve now become a substantial investor in the company after tracking it for quite a while,” Iafrate says.
“They are going to become a big, substantial player in Australia by producing compostable plastic polymers and selling it to packaging companies like Amcor (ASX:AMC), Visy and Pact (ASX:PGH).”
Those companies are massive producers of single use plastic. This means they are going to have problems, Iafrate says, because that packaging will be legislated against sooner rather than later.
“Amcor recently said that by 2025, all of their plastic will either be recyclable – which is not a solution – or compostable, which is the solution,” Iafrate says.
“And biodegradable plastic may degrade but it remains in the soil, which is why a lot of these plastics are now being found in the food chain.
“Secos’ compostable plastic breaks down and turns into dirt, because it is starch-based; it comes from corn.
“This little mob is the only compostable plastics manufacturer in Australia. There are three or four manufacturers in Europe, nothing in the US.
“This will be huge market opportunity for Secos.”