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Canadian companies have become more aggressive in their growth strategies. In recent years, many of Canada’s largest companies have raised record levels of liquidity, made ambitious acquisitions and launched new products to penetrate global markets. One of these recent growth companies is GFL Environment (TSX: GFL) (NYSE: GFL) renewable energy platform.
GFL is one of the largest waste management companies in Canada; it went public a little over a year ago. Since then, the underlying business has been in full swing as the stock is up more than 105%. Today, the management team is keen to enter the trillion dollar renewable energy sector through an interesting niche. Here’s a closer look.
GFL’s renewable energy platform
GFL recently sold some non-core assets and raised more than $ 60 million in funds to deploy in a new renewable energy platform. The plan is to produce renewable natural gas (RNG) from landfills. The team intends to start operations in 18 landfills before expanding the program.
CEO Patrick Dovigi estimates that this new platform could soon generate more than $ 100 million in annual free cash flow. Considering that other companies in this industry are valued between 25 and 30 times free cash flow, this revolving company could be worth $ 3 billion in shareholder value.
The transition to renewable energy around the world is worth more than $ 2 trillion over the next few decades, so this new venture opens up a huge growth opportunity for GFL.
Valuation of the GFL share
Besides the new renewable energy game, there is something to be excited about about GFL. The company recently posted better-than-expected second quarter results. Management estimates that annual free cash flow could exceed $ 510 million in 2021 and possibly $ 800 million by 2023.
This means that the stock is currently trading at 28 times current free cash flow and 18 times future cash flow. That’s not bad for a business growing at around 5% per year.
The fact that GFL’s core business model is recession-proof makes it even more appealing. Waste management is a service disconnected from the economy. Local governments and municipalities sign long-term contracts with waste haulers, giving them several years of revenue visibility. In addition, the demand for waste management does not decrease during recessions or health crises.
This is why GFL’s stock continued to rise steadily throughout 2020 and 2021, despite health scares and the lockdown. This resilience is what makes GFL an ideal choice for investors looking for a safe haven.
At the end of the line
GFL’s renewable energy business could be worth $ 3 billion eventually, but it opens up a trillion dollar market for the company. The stock has doubled over the past year as the underlying trades rise steadily and remain more profitable than ever.
GFL stock is currently trading at 28 times free cash flow, which is a fair price to pay. The management team is confident of driving cash flow through organic growth and the new renewable energy platform. This could be the ideal stock for investors looking for a safe haven. Keep an eye on it.