Yahoo Finance GFL CEO says waste giant being 'significantly undervalued' after buyout reports
GFL Environmental (GFL.TO)(GLF) CEO and founder Patrick Dovigi says his Toronto-based waste management company is being undervalued as analysts muse about potential buyout scenarios.
“What is very clear is the company has many options, and all are pointing to the fact that the company is significantly undervalued based on the value of our assets,” Dovigi told Yahoo Finance Canada in an email on Wednesday.
GFL’s fate has been an open question since the Globe and Mail newspaper and financial news outlet CFTN reported last month that the company is entertaining multiple offers from private equity and infrastructure funds, citing unnamed sources.
According to the Globe, one offer from a consortium of investors is for GFL’s entire business. Another reportedly targets its environmental services division, with the buyer agreeing to pay about 15 times the unit’s earnings before interest, taxes, depreciation and amortization (EBITDA). According to GFL’s financial filings, the unit earned adjusted EBITDA of $383 million in 2023.
The discussions are reported to be in preliminary stages, and therefore may not lead to a transaction.
GFL’s Toronto-listed shares are up about 25 per cent since early June, and have hit all-time highs in recent weeks as investors anticipate deals. Prior to that, concerns about the company’s debt load had weighed on the stock.
“We believe there is significant optimism for the potential sale of the environmental services division already reflected in the stock,” BMO Capital Markets analyst Devin Dodge wrote in a recent note to clients. “Should a transaction not materialize, we suspect the stock could give back some of its recent gains.”
He downgraded his rating to “market perform” from “outperform,” with a $42 price target on New York-listed shares.
In previous research, Dodge outlined four potential scenarios for GFL, ranging from a full sale of the business, to doing nothing at all. Citing recent meetings with company management, he sees a group of private equity and sovereign wealth funds displacing current shareholders as the “most likely outcome.”
“If a consortium of new ownership displaced the current private equity ownership, this would allow an expedited exit for BC Partners, Ontario Teachers’ Pension Plan & GIC, while also pushing out further private equity-related sell-downs another three to five years,” Dodge wrote.
He added that a potential sale of GFL’s environmental services unit “appears to be in the early innings.”
On Wednesday, Dovigi rebuffed these conclusions.
“I am not sure Mr. Dodge is in any position to comment on the likelihood of any outcome, as he has never spoken to me,” he wrote in the email.
In a note to clients last month, RBC Capital Markets analyst Sabahat Khan said a potential sale of GFL’s environmental services business would serve the dual purpose of lowering the company’s debt load, while freeing up capital to grow its solid waste business.
“We are not entirely surprised that GFL is receiving buyout interest,” Khan wrote. “At a high level, we think private buyers looking to acquire waste businesses with leverage would find this cash-generation profile attractive.”
Toronto-listed shares fell less than one per cent to $52.44 as at 11:35 a.m. ET.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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