Mucky Business (August 2025)

Theme and Background

This chapter opens with the British proverb "Where there’s muck there’s brass," introducing the phenomenon of high investment returns in the North American waste management industry. The report notes that despite stagnant growth in underlying waste volumes at the industry's base, listed companies can still achieve significant excess returns, and it naturally introduces a non-traditional investment target—Secure Waste Infrastructure, which serves the energy sector.

Core Thesis

The author's core investment argument is that the excess returns in the waste management industry stem from high barriers to entry, network effects, and pricing power, rather than growth in waste volumes. By replicating the business logic of the municipal waste industry, Secure Waste Infrastructure has established a hard-to-replicate asset network in the energy waste disposal space. Its intrinsic value is less correlated with the commodity cycle than the market perceives, especially since 80% of its waste comes from production activities with little connection to oil prices.

The contrarian judgment lies in this: the market may view energy waste disposal as a highly cyclical business, but the report emphasizes that production-related waste volumes (accounting for 80%) have grown steadily at an annual rate of roughly 3% over the past two decades, far better than the public's expectation of sharp fluctuations. The "counter-cyclical" nature of waste volumes makes it an underestimated stable cash flow business.

Key Arguments and Data

• Sources of Excess Returns in Municipal Waste Industry:
• Listed companies achieved annualized excess returns of 5-10% over the past decade.
• Waste volume growth was extremely weak: from 2000 to 2018, U.S. municipal solid waste volumes grew at an average annual rate of just 1% (sourced from Statista and EPA data).
• Growth drivers came from pricing power: waste disposal prices far outpaced inflation, while volume growth contributed little.
• Business Characteristics of Secure Waste Infrastructure:
• High construction costs: building a new treatment facility costs approximately C$50 million.
• Market dominance: holds roughly 70% market share in the outsourced energy solid waste disposal market and about 70% in the outsourced water disposal market.
• Customer stickiness: forms "bundled" relationships with customers through pipeline connections.
• Structural Counter-Cyclical Features of Waste Streams:
• 80% of waste streams come from oil production rather than exploration drilling.
• Canadian oil production has grown at an average annual rate of roughly 3% over the past two decades (Chart 2 data), with volatility far less than that of oil prices.
• The oil sands business accounts for a very low share (estimated below 5%), as these are large-scale mining operations with their own on-site treatment facilities.

Data Indicator	Value/Range	Source/Notes
Annualized excess returns of municipal waste companies	5-10%	Over the past decade
Annual U.S. waste volume growth rate (2000–2018)	1%	Statista/EPA
Secure waste share (production-related)	80%	Company estimate
Annual Canadian oil production growth rate	Approximately 3%	Chart 2 data
Cost of building a new treatment facility	Approximately C$50 million	Company estimate
Market share in energy waste disposal	Approximately 70%	Company estimate

Companies/Assets Involved

• Secure Waste Infrastructure (market cap approximately C$3.5 billion): Core investment target. Its business involves processing solid and liquid waste generated by the energy industry. Bullish view: the report argues that its network (roughly 80 facilities) is difficult to replicate, and the growth driver for waste flows has limited correlation with oil prices, providing a foundation for sustained growth and pricing power.
• Waste Connections: A well-known North American municipal waste management company. On February 1, 2024, it acquired 29 facilities from Secure, reflecting the logic of industry consolidation.
• LNG Canada: A liquefied natural gas project located in Kitimat, British Columbia. It is mentioned as an exogenous driver that could bring future waste growth, but is not an investment target.

Investment Implications

Investors should focus on assets with "monopolistic networks" and "inelastic demand" attributes. Even in an environment of extremely low terminal usage growth (1% per year), pricing power can still drive excess returns. For Secure Waste Infrastructure, the implication is that energy waste disposal is more stable than the market perceives. The investment logic should not rely on a sharp rise in oil prices but should instead focus on the stable growth of production-related waste and the customer stickiness brought by pipeline bundling. Rather than tracking commodity price volatility, the key is to assess the irreplicability of its asset network and the certainty of its cash flows.

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Theme and Background

This chapter focuses on the formation history and competitive landscape of Secure Waste Infrastructure (formerly Secure Energy Services). By reviewing key events such as its acquisition of Tervita, challenges from the Canadian Competition Bureau, and the forced sale of assets to Waste Connections, it reveals the company's near-monopoly position in the energy solid waste disposal market of the Western Canada Sedimentary Basin (WCSB), along with the resulting pricing power and capital allocation advantages.

Core Thesis

The author argues that Secure is a highly attractive investment opportunity. Despite historical turbulence (Tervita went bankrupt after a high-leverage privatization), the company now achieves a 19% return on invested capital (ROIC) and a 32% actual EBITDA margin, driven by approximately 70% market share, hard-to-replicate network effects of its assets, regulatory-confirmed pricing power, and excellent capital allocation (repurchasing 25% of shares). Yet its valuation sits only slightly above the floor price forced upon Waste Connections (7.5x EV/EBITDA), less than half the valuation multiple of municipal waste companies — implying significant upside from valuation reversion.

Key Arguments and Data

1. Asset Network and Market Position

• Secure operates approximately 80 facilities in the WCSB, capturing roughly 70% of the energy solid waste disposal market and about 70% of the outsourced water disposal market.
• Building a comparable treatment facility costs around $50m, and the existing network is difficult to replicate.

2. Historical Lessons and Competition Bureau Ruling

• Predecessor Tervita was taken private in 2007 by its founder with 70% debt leverage, coinciding with the financial crisis, and filed for bankruptcy in 2016.
• In 2021, Secure acquired all of Tervita's assets for $1.4bn.
• In 2021, the Canadian Competition Bureau attempted to block the acquisition, arguing that Secure and Tervita were "the two largest and, in most regions, the only" waste service providers in the WCSB, and that the merger would lead to higher prices and lower service quality.
• In 2023, the Competition Tribunal sided with the Bureau, forcing Secure to sell 29 facilities to Waste Connections for $1.1bn (approximately 7.5x EV/EBITDA). The author believes this forced sale price can serve as a floor valuation reference.

3. Capital Allocation Results

• Secure effectively paid $1.4bn for all assets, and considering the profit differential during the holding period, it ultimately retained approximately 70% of the original assets for "free."
• Using internal cash flow and proceeds from the sale, the company repurchased 25% of its outstanding shares.

4. Financial Data Comparison

(The following are core financial metrics provided by the author, compared with municipal waste companies)

Metric	Secure Waste Infrastructure	North American Municipal Waste Companies (Typical)
Reported Revenue	CAD 10bn (including passthrough)	—
Net Revenue (Actual)	CAD 1.5bn	—
EBITDA Margin (Net Revenue Basis)	32%	25-30%
ROIC	19%	10-15%
Net Debt/EBITDA	1.3x	2-3x
Valuation (EV/EBITDA)	Slightly above 7.5x (floor)	15-20x

5. Growth and Cyclicality

• Compared to municipal waste (inelastic demand), Secure's waste volume growth is more dependent on energy production activity and is more cyclical, but the author believes its growth prospects are superior.
• Canadian oil production data (citing Statista) shows historical growth trends, but is not expanded upon in the original text.

6. Implicit Thesis (Contrarian)

• The market overlooks the company because reported revenue is as high as CAD 10bn but EBITDA margin is only 4%; the author points out this is solely due to passthrough accounting in the pipeline infrastructure business, with actual net revenue margin reaching 32%.
• The author argues that the Competition Bureau's allegations actually confirm Secure's pricing power — it is precisely this market power that attracted regulatory intervention.

Companies/Assets Involved

Company/Asset	Role	Key Data	View
Secure Waste Infrastructure	Investment target	Market cap CAD 3.5bn, ROIC 19%, EV/EBITDA slightly above 7.5x, repurchased 25% of shares	Bullish — Undervalued monopoly asset
Tervita	Acquisition target (historical)	Leveraged 70% in 2007 privatization, bankrupt in 2016; merged with Newalta and went public in 2018	Negative history, but laid the asset foundation for Secure
Waste Connections	Municipal waste company, asset buyer	Acquired 29 facilities for $1.1bn (7.5x EBITDA)	Its bid is used as a valuation floor reference
Canadian Competition Bureau	Regulator	Blocked the merger, forced asset divestiture	Its ruling indirectly confirmed Secure's market power

Investment Implications

The author (Marathon) clearly believes Secure's current valuation is far below its fundamental value: possessing a monopoly network, high ROIC, strong pricing power, and excellent management, with the stock price only slightly above the forced-sale "floor price," offering ample margin of safety. Investors should buy and wait for valuation to revert toward municipal waste company multiples (approximately 15-20x EV/EBITDA). However, note that the business is highly correlated with the Canadian energy production cycle; a sharp decline in oil prices or stricter regulation could impact performance.