Electronic waste is the fastest-growing form of rubbish worldwide. And with world governments clamping down on the disposal of used electrical items, it's becoming a very lucrative business. Eoin Gleeson looks into the sector, and picks the best company to invest in now.
It was as if they couldn't stand to watch anymore. As the prospect of an English victory in the Ashes sank in on Saturday, residents all over Canberra were seen carrying televisions and computers out the door and tipping them into the boot of their car. Within hours, the roads leading to the Sims waste dump on the south of the city were backed up with traffic. By the time Andrew Strauss had collected the urn on Sunday evening, there were 20,000 computers and televisions piled up in the Sims waste yard.
Sour grapes? Not at all. It just so happened that the Ashes coincided with an electronic recycling drive by Apple Australia. For one day only, Apple offered to waive the £20 recycling fee for computers and televisions. With Australia making a transition to digital TV next year, the city's dumps were deluged with electronic waste. In fact, electronic waste from PCs to mobile phones and microwaves is the fastest-growing form of rubbish worldwide. In America alone, 20 million personal computers and 128 million cell phones become obsolete every year, according to Turner Investment analyst Robb Parlanti. Many of them end up in landfill sites or incinerators.
The trouble is that this waste is horribly toxic. The cadmium from just one mobile phone battery is enough to pollute 600,000 litres of water a third of an Olympic swimming pool. We discard a million phones in the UK every year. So governments worldwide are introducing laws that require electronic titans to fund recycling drives such as the one held in Canberra last week. For example, in July 2007, the EC directive on Waste Electrical and Electronic Equipment (WEEE), which sets Europe-wide targets for the collection and recycling of electronic goods, came into force in Britain. In the US, 20% of all e-waste is already recycled and state regulators are queuing up to follow the EU's example.
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Equipment such as that recycled by the citizens of Canberra is unloaded at the warehouses of electronic recyclers. There, computers and TVs are stripped for reusable microchips and parts. These are sent back to the likes of Apple and Panasonic for remanufacture. Then the recyclers get to the valuable bits the commodities. A tonne of scrap from discarded PCs contains more gold than can be produced from 17 tonnes of gold ore. Silver and copper are stripped from laptops and monitors and piled for resale. Much of what's left ends up on shipping containers bound for Asia.
This is a lucrative business. The industry generated revenues of $3bn last year. In Hong Kong, the e-waste import centre of Asia, a container of monitors and TVs that sells for $5,000 can net profits of $4,000, according to BusinessWeek. The trouble is that this is illegal trading of hazardous waste. Much of what's left after the equipment is reworked is dumped in huge toxic mounds on the outskirts of cities. Sooner or later, the authorities will have to crack down on this activity.
So a far better area to focus on is the recycling of mobile phones in Europe. It's legal and it's even more lucrative than recycling TVs and computers. The average phone returned to retailers in Britain still has a working life of between six and seven years, says Hill. "Each of those phones is worth approximately £16 for the companies who know how to unlock their value." We have a look at how you can benefit in the box below.
The best bet in the sector
There are more than 1,200 groups involved in recycling electronic waste. But among European phone recyclers, one company rules the roost: Regenersis (LSE: RGS). The firm collects unwanted mobiles from major phone companies and sells them to suppliers in the developing world, from Africa to the Far East. Thanks to the EC directive WEEE (see above), Regenersis is able to produce handsets from as little as $5 each for basic models and $100 for the top of the range models, notes MoneyWeek's Paul Hill. Of the phones the firm receives, 70% can be reused or sold overseas.
The other 30% are sent to factories across Europe for recycling into everything from traffic cones to saucepan handles. Regenersis also acts as a repair shop on warranty claims for the likes of Vodafone and Apple. The company is doing great trade in repairing phones, as consumers opt to get phones fixed rather than fork out for new ones. It's a £15m company with a £100m turnover and about £4.3m of debt. On a trailing EV/Ebitda multiple of only 4.2, Regenersis is also ludicrously cheap. "I see the shares more than doubling over the next two years," says Hill.
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Eoin came to MoneyWeek in 2006 having graduated with a MLitt in economics from Trinity College, Dublin. He taught economic history for two years at Trinity, while researching a thesis on how herd behaviour destroys financial markets.
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