Bennett Environmental (BEV)

Fred,

I need a quick assessment from you on the state of the market for contaminated soil remediation. If the overall market should stay strong, I will take a closer look at this company.

One would generally assume that contaminated soil is a thing of the past, but it is not. There are still ongoing cases of contamination (albiet many fewer than in previous decades), but contamination is still frequently 'discovered' and is always a significant liability. This can be the case for businesses working on their own property, or in new construction projects when remnants of the past still turn up because nobody really knows what happened back in the day when companies tried to cut corners and disposal costs. Moreover, there are also many known, very large and severely contaminated sites accross the US and Canada... mostly the US. The clean-up of superfund sites is and will be an ongoing process for decades. On top of this, landfill restrictions are becoming ever more stringient and new regulations are always being developed to clean up contaminated sites and to limit what can and cannot go to landfil.

I looked through the company website and their whole process is actually pretty simple, safe and effective. They have shown significant increases in revenue annually for a few years, showing that companies (and governments) are not only cleaning contaminated sites, but putting clean-up back on the agenda (most companies stopped durring the recession when money was tight). Its becoming more of a corporate social responsibility issue now and companies and investors don't want these liabilities.

The potential problem issues I see with the company is the fact that their site is not mobile, and therefore transportation costs are going to be a big hurdle for many companies wishing to clean up their site, particularly as time progresses and the distance between the remediation facility as closer sites will be cleaned up first.

At first glance though, I think its a pretty sound investment.

Thanks Fred, that helps a lot. I was kind of wondering who would spend good money to transport dirt to a fixed facility, and then again to bring it back, it sounds very expensive, and not much of the expense goes to the remediation company.

I did a quick Google search, and it looks like mobile remediation services do exist, which would make the fixed facility obsolete. In that case, I am going to be a little more cautious with this one considering how they will become an increasingly expensive alternative over time.

The question is now whether they can be cost effective for enough time to get a good return on investment. That will take a bit more analysis than I would like.

I doubt they would transport the clean dirt back to the sites, unless they were very close by. But your comments on mobile remediation services made me think about the process a bit more. See the mobile services would never be able to provide the same level of remediation, and if they did, they would likely be pretty dirty and therefore not legal or as thourough. They need scrubbers and particulate filters which generally as a package aren't mobile.

All that being said I am interested in the exact location of their facility, specifically in relation to contaminated sites. They wouldn't have chosen to build a multi-million dollar facility just anywhere. And my next logical questions are who is their client base and where do they see future business/growth? I think this company might still be worth another look. If we can't find what we're looking for, we can always ask.

Here is my quick analysis.

Cash - $1.6
Current Assets / Current Liabilities – 6.9x
Book Value - $ 1.67
Total Debt - $0.08
EPS $ 0.36 (2010), $0.38 (2009)

Current share price is $2.18 (most recent share issuance of approx 20% of outstanding shares at $3.05 per share.
A lot of disclosures for fraud and illegal activities with regard to how they obtained their contracts. Total liability in the worst case looks to be about $10-15M ($0.25 - $0.375 per share). This does look pretty bad though. Not sure how this affects their reputation.

In 2010, the company effectively had 1 customer. This makes sense, considering the customer would have maxed out their processing capacity. However, it does not say much for future profitability.

There is a note about a change to their accounting for stock options that will have them value the liability on their books starting in 2011. This will have a negative change on book value of about $3M ($0.075 per share), and income (retained earnings) will be reduced for the same amount.


I am a little worried about all the litigation notes in their financial statements, but perhaps this has all been put behind them and they have remediated their management team. If we can look at the business aside from this mess, it still remains pretty profitable the past few years. However, I saw some comments about their revenue recognition policy that also made me a little nervous.

Still cautious on this one. Too many shady dealings going on here.

Their facility is located in St. Ambroise, Quebec. Client base looks mostly limited to their Saglek project in Labrador (800km away from their facility), and they mention the project is nearing completion. Once this is done, their future will be in question. If they can land another major contract, it should be good news. However, the recent sale of their second idle facilty in Belledune (wherever that is), suggests they don't expect contracts to be rolling in any time soon.

These guys just changed up their management team. One of the big problems out of the way, but I am being patient and waiting to see how the new team plays out before investing. I am really waiting for an adjustment to revenue to correct their recognition policy or at least clarify it some more and make it consistent.