Rationale for W2T acquisition26 Dec 2019 06:01
I have been mulling over the RNS from Monday and I can see a rationale for it. For me the question is the price that is to be paid for W2T. I tend to the view contrary to that of Manabouttown that Waste2Tricity does need this deal more than PHE. I am willing to accept that PHE may have initiated the discussion. However, PHE can survive without W2T. I am not sure that the same can be said of W2T.
Align Research in their research from last year stated on page 2 that PHE needs to sell 2-3 DMG units to breakeven. The Peel agreement is for 11 sites so that would be about four times more than the breakeven point. As the revenue will be an annual recurring fee even with no other contracts PHE is profitable on the Peel agreement alone. When I asked at the AGM the breakdown of customers that PHE was in discussion with included major Waste Management Companies, so some more Peel type deals are possible.
As I have always understood it W2T had two functions to find customers and to arrange the finance. While they have done the first and have found a pipeline of customers the second would appear to be harder. One possible issue is that W2T does not have sufficient assets to provide security for the finance. In these circumstances an acquisition of W2T would provide PHE with the capacity to find additional customers. The alternative would be to terminate the agreement with W2T and try and recruit the additional staff. This would increase the headcount and associated administrative costs.
I need convincing once I have seen the actual, as opposed to the speculated, price that it is one that is worth paying.
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