Analysts hail GFL despite bad review

Negative report ‘without merit’ company says

A number of analysts are reiterating their confidence in GFL Environmental Inc. after the stock lost as much as 10 per cent of its value on Tuesday following the release of a negative report from an activist short seller.

New York- based Spruce Point Capital Management Inc. published a 107- page “strong sell” report earlier this week that questioned GFL’S roll- up business model and highlighted alleged inconsistencies in its accounting.

In a statement, GFL said the report contained “numerous inaccuracies and mischaracterizations” and was “without merit.”

At least four analysts from major U. S. and Canadian banks have since reaffirmed their positive outlooks on the waste management company’s prospects.

Goldman Sachs analyst Brian Maguire was one such analyst.

Maguire upgraded the stock to a “buy” and raised his 12- month price target on the TSX- listed shares — which closed Thursday at $25.45 — to $32.

“We are encouraged by management’s ability to prove out its growth strategy through multiple transformative acquisitions,” Maguire wrote. “As a result, we upgrade shares to Buy to reflect GFL’S industry- leading growth trajectory while still trading at a 1.7x EBITDA multiple discount to solid waste peers.”

Maguire directly addressed some of the concerns that Spruce Point raised about GFL’S accounting, arguing that variations in the numbers GFL used for capex in its financial statements were normal and reflected differences in when that equipment was put into service and when cash payments for it were made.

National Bank of Canada, Stifel Financial Corp and Jefferies all also published defences of GFL.

Jefferies analyst Hamzah Mazari said he viewed the recent weakness in the stock as a buying opportunity.

Mazari also tackled what he saw as inaccuracies in Spruce Point’s report. He responded to Spruce Point outlining several public documents in which GFL had used different sets of numbers for revenue in the first quarter of 2019.

Mazari said the short seller used a prelim prospectus for one set of revenue figures and that document did not yet include reclassifications. The numbers for that quarter would’ve also needed to be reclassified because it was the first quarter that GFL began reporting waste industries revenue, Mazari said.

As for Spruce Point’s critiques of GFL’S roll- up business strategy, Mazari said that every publicly traded company in the waste management business operates under this structure.

“The waste sector by nature is a roll up and GFL is as well which does not mean it is going to zero,” Mazari said.