Waste Stock Watch (September 01, 1998)

The all-time drop in the value of Canada’s one-dollar coin (the “loonie”) has forced analysts to speculate about the direction in which interest rates are headed. There is significant pressure on the Bank of Canada to raise rates to support the sagging dollar, which plunged into the mid-60 cent per U.S. dollar range in early August. However, the bank knew that if it raised the prime lending rate, it could adversely effect the economic growth of the country. If the prime interest rate rises, investment dollars are more likely to be directed to debt instruments, and investments in businesses are generally reduced. While businesses have less capital available, they are also paying higher interest rates to lenders. (In the recession of the early 1980s, interest rates in the twenty per cent range forced many businesses into bankruptcy.)

The monetary crisis in Asia has impacted the world economy. While Canadian exporters enjoy certain premiums (as they are often paid in U.S. currency), Canadian importers and consumers of U.S. imported goods essentially foot the bill.

Nevertheless, the Solid Waste Index has remained strong, closing at 8796.05. The index has outpaced both the DOW and the TSE since inception and shows no signs of slowing down.

Waste Management Inc. and U.S.A. Waste companies have merged. We added Allied Waste to the index, and it now accounts for ten per cent of the total value of the index.

Hot Sector News

Browning Ferris Industries Inc. (BFI) announced that it has completed a $500-million increase in a share repurchase program which had been approved by the board in early 1998. BFI is essentially buying back its own stock because management believes that the shares are worth more than they are trading for. This program should increase shareholder value. Since the inception of the program in October 1997, the company has repurchased approximately 41.8-million shares of its common stock at a total cost of $1.5-billion.

The company has also announced board purchase authorization of an additional $750-million in common stock. This permits the company to continue its buy-back program. According to BFI President and CEO Bruce Ranck, the company will continue to execute its strategy of prudent share buy-backs when it adds value for shareholders. The company anticipates that the current share repurchase program will be completed on or before September 30, 1999.

BFI is a North American waste services company which provides collection, recycling, and disposal services for residential, commercial, industrial, and medical waste. The stock has performed reasonably well and is up two per cent since the inception of the index. It closed at $35.19 on July 31.