View from City Road: Bide your time on waste offer

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The Independent Online
THE pounds 113m acquisition by Wessex Waste Management, a joint venture between the West Country water utility and the world's largest rubbish handler, of WML, a prominent landfill waste disposal business from NFC, the transport group, is potentially a good deal for Wessex.

But the short-term impact on earnings means shareholders should resist the company's offer to subscribe for new shares.

WML makes a good geographical fit with Wessex's existing businesses and will make it Britain's fourth-biggest waste management company two years after it was set up.

WML boasts total landfill space with planning consent of 43 million cubic metres and another 32 million of as yet 'unconsented' space at four other locations. On this basis Wessex is buying the entire landfill bank at a modest price of below pounds 2 a cubic metre.

Last year WML used up just 2 million cubic feet of its available space, which means the acquisition provides Wessex with enough capacity to last it many years.

None of this, however, makes the one- for-six rights - the shares are being offered at 480p to raise pounds 81m - attractive. The company is also raising a further pounds 65m from Waste Management though the issue of a new class of shares and loan note that will give WML a 20 per cent stake in the utility.

Wessex, run by Nicholas Hood, is paying 40 times historic earnings, a fancy rating at the best of times, let alone when even the waste business is feeling the effects of recession. As a result the deal will dilute Wessex Water's earnings in the next two years.

The shares are likely to underperform, so investors can afford to bide their time before buying shares in the company.

(Photograph omitted)

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