Suez Environnement is a Paris-based global company that provides essential water and waste services and equipment. This includes the management of drinking water and wastewater services, water treatment engineering, and waste collection, recycling, and disposal. Suez is one of the two main global environmental companies that address water access and wastewater challenges.
The company operates in 40 countries and has diversified operations by geography and businesses, though Europe contributes the majority of its profits. Revenues are evenly divided between water and waste activities.
Outsourcing water management to private firms is a risky endeavor, and governments must take care in structuring their contracts. Suez does not have a perfect track record, but we believe it is well equipped to meet the growing complexity of environmental issues through technological advances and the integration of both water and waste services. In a 2013 interview in The Guardian, a representative for the company discussed how Suez’s approach had evolved to embrace more collaborative decision-making with government partners. The corporate sustainability research firm Sustainalytics rates Suez in the 97th percentile in its peer group.
Both water and waste disposal needs are immense. Over the next twenty years, for example, an estimated 1.4 billion more people will need greater water infrastructure. Currently, 36% of the world’s population does not have access to sophisticated wastewater treatment systems. In addition to population growth, increased urbanization and resource strains will also likely raise the demand for Suez’s services over the long term.
Waste recovery and materials preservation are a key focus for Suez, and the company espouses a model of the “circular economy.” A circular economy is an alternative to a traditional linear economy (make, use, dispose). It works to keep resources in use for as long as possible, extract the maximum value from them, then recover and regenerate products and materials at the end of each resource’s life.
Suez is undergoing a positive transition. After an extended period of lackluster results, management has made significant progress in improving the company’s financial performance. Suez historically had a reputation for having sprawling operations and bloated costs. The current management has made a concerted effort to streamline operations so the company can take advantage of the considerable opportunities in water and waste treatment. Early results are encouraging, as the company’s cash generation in excess of its ordinary business needs has improved significantly.
This progress, however, doesn’t seem to be reflected in the stock’s valuation relative to its strong cash generation. We consider the stock to be significantly undervalued in an extremely overvalued stock market. Based on its strong cash generation and dividend yield of 5.3%, we like the stock, especially as it seems overlooked by most analysts and investors.
Dividend Yield: 5.3%
Stock 52-Week Low–High: $6.73–$9.74
Risk: Moderate
Price: $7.00
Market Cap: $8 billion
www.suez-environnement.com