October 12, 2003

It may not be glamorous, but there's brass in muck

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When I was making my communion, everyone in the class wanted to be an astronaut.
Most kids today do not know what an astronaut is.

Back then, many were glued to a bizarre science fiction programme called Space 1999 on Tuesday nights.

This mid-1970s gem involved actors in Lycra hamming it up in studio 5 of the BBC pretending to be on a starship.The special effects were pathetic, the starship looked like a bad Airfix model after one mushroom too many, while the extra-terrestrials bore a passing resemblance to how the clientele of Bad Bobs on All-Ireland final night used to look.
Yet Space 1999 was compulsive. It came hot on the heels of David Bowie’s extraordinary album Space Oddity – itself a play on Stanley Kubrick’s magnificent movie 2001: A Space Odyssey. Bowie then went one better and in 1976 played the lead role in Nicholas Roeg’s filmThe ManWho Fell to Earth.

What binds all these things together is a recurring human mistake: the fallacy of total belief in the present and its technology. This phenomenon grips humanity at least once a generation. In the early 1970s, space, space travel and living on the moon were regarded as distinct possibilities by 2000. Now as we move into 2004 we realise that the Space Odyssey vision was nonsense. Costs, pointlessness and the basic `What would you do up there anyway?’ factor have put the kibosh on living on the moon.

However, the 1970s mistake is repeated about every 20 years. Practically every generation believes that it is uniquely living through a period of real, unprecedented and dramatic change that will reinvent the human experience in 20 years’ time.

Despite all the innovations in technologies, which pundits tell me are epoch-making, the last 30 years, let alone the last decade, have been underwhelming.

The average Irish kitchen (where we all spend most of our time) has not changed particularly since the 1970s. With the exception of microwaves and dishwashers, what is the difference between an average suburban kitchen in 1974 and 2004?

Likewise, travel has not evolved dramatically since then. In 1974 it took six hours to fly to New York; today it takes more or less the same. In 1974 people commuted as they do now.

Most living rooms in 1974 had TVs. Many were black-and-white, but they were broadly similar boxes. Granted, the fabulous drinks cabinet TV sets are gone (shame!) but with the exception of remote controls, Irish living rooms are not so very different to the 1974 versions.

Contrast this with the enormous and real changes our grandparents experienced. Electricity, for one. Imagine a world without electricity! Imagine a world without cars, traffic jams and car crashes!

Now we’re talking change. Yes mobile phones have made the world smaller, but this doesn’t compare to the technological change electrification brought to the Ireland of the 1940s.

This week change and technology – change in particular – is in the air again, as the tech bubble of the year 2000 appears to be reinflating. Hard as it is to believe, shares in eBay Inc., the world’s biggest web auctioneer, are approaching the record high reached during the height of the internet bubble.

Obviously, this is raising concern about another mania for online companies that could end in collapse.

The shares closed at a 52-week high of $58.47 on the Nasdaq, just below the $60.94 high set on March 24, 2000. The company’s stock has more than doubled in the pastyear, boosting its market value to $37.5 billion, more than Nike and AT&T combined.

The recent news that the O’Reillyled consortium might try to flog Eircom again raises the spectre of Irish investors buying an asset that they already owned in 1999 for the third time. (The first time we put our hands in our pockets was via taxation, when the company was called Telecom, the second, obviously, was during the flotation.)

If this were to happen, it would be a miracle in fee generation for advisers. Yet the market is conducive, for example Belgotelecom is to float in the first quarter, and it is highly likely that the telecoms market will heat up again.

Can the strong upswing in tech valuations be sustained? The answer should be no. None of the technology is of the `must have’ variety.

In telecoms, for example, it appears more likely that the fixed-line telephone business should show returns that would be typical for other utilities such as mature water companies in Britain – steady, but not spectacular.

Interms of net-based products such as eBay, here again we should be thinking of valuations consistent with well-run retail outfits rather than the ridiculous bubble-type premium it is now attracting. Granted, eBay’s turnover growth has been very strong, but does that justify a multiple of 93 times earnings? We are back to the technology trap, so when the salesmen come knocking on your door telling you that the future is in technology, remember Space 1999.

However,with interest rates low and possibly staying low for some time, there is a lot of cash sloshing around. Taken together with the incipient recovery in the US and the change of fortunes in Asia, we have the backdrop for another rally.

Last March/April this column advised people to dip their toes again in the stockmarket, and the rally since then has surpassed even the most optimistic. So what next?

Well, RBS bid 16 times earnings for First Active during the week, and that story might not be over yet,with speculation of a counter-bid by Anglo still doing the rounds.

If so, other Irish banks look cheap at about 11 times in the short term as a trade. But longer term, the land thing (check last week’s item, on this newspaper’s http://www.thepost.ie/ website) argues strongly against Irish financials, and RBS might have overpaid for First Active.

There is one sector that has enormous potential: waste. The jailing of ten anti-bin-tax protesters should be the signal to buy any stock with exposure to the waste business.

The chances for supernormal profits are substantial, as Ireland is so far behind the rest of Europe in the waste game.We have the worst record of recycling in the EU,we have no incinerators and precious few landfills.

Nimbyism has given way to Banana (build absolutely nothing anywhere near anything), and this is causing prices for waste disposal to go through the roof.

Over the course of the next few years this problem is going to get worse, and EU directives and the threat of fines will force the state to act.

Obviously, over time, the returns in the waste business will level off as with any other utility business,but there is a window for pre-2000 internet type profits. It might not be sexy, clean or modern. Nor might it conjure up cosmic visions of the future. But, as they say in the north of England, `Where there’s muck, there’s brass’.  

  1. Chris Madden

    Good article!

    I agree that the “tech bubble of the year 2000 appears to
    be reinflating”. Futhermore, I think it will reinflate a
    lot more.

    Comparisons are often made between dot-com and Tulip Mania
    in Holland in the 17th century. These comparisons are
    usually made to highlight the folly of the dot-com bubble.

    Tulip Mania was dot com on a larger scale. However, it
    should be noted that a recurrence of Tulip Mania did take
    place in Holland shortly after.

  2. Conor

    “Costs, pointlessness and the basic `What would you do up
    there anyway?’ factor have put the kibosh on living on the
    moon.” Gutlessness prevented America from eatablishing a
    colony on the Moon. What would you do there? Um, work,
    play, study, holiday, make babies – in other all the usual
    stuff of life!

  3. Damien

    Conor, Why spend the money sending people up to do that
    when we can do it for free here?

  4. Joe

    very good article on the paper at the weekend about there
    being money in “muck”. (Not entirely true by the way)Im the
    Manager of a private waste management company with a depot
    in Tipperary. We currently collect from approx. 35,000
    houses and 3,000 commercial businesses including some blue
    chip companys such as Bulmers/C&C and Golden Vale. You are
    right in that there should be more emphasis on proper waste
    management and people will have to realise that we cannot
    keep burying all our waste because what is scarce is
    usually expensive and landfill definitely is expensive. The
    cost of waste disposal went up 46% last year in Limerick
    due to landfill increases. Business cannot keep paying such
    increases and we, along with a few other of the larger
    companies realise this. We are at the forefront of
    recycling and we are putting in a 803.5m investment into
    composting technology over the coming months. This, along
    with other recycling methods, is working in other countrys
    which we visited including Holland and Germany. The future
    of waste disposal is in recycling and helping companies and
    households to get used to proper waste management. There
    are still some “cowboy” operators out there providing
    haphazard waste disposal services but with more effective
    policing by Local Authoritys, these operators should be
    made play by the same rules as all the rest of us do as
    they give the industry a bad name. Its good that you
    highlighted the need for Ireland to get up to speed with
    our neighbours in the EU but there is a lot of speeding up
    to be done as we are facing a crisis soon. Perhaps you
    could do a feature on Agenda at some stage in the future
    raising a few issues such as what are the regional
    authoritys long & short term goals and plans for waste
    management and if thousands of tonnes of compost & RDF are
    produced as an alternative to landfill, where will we
    dispose of that??
    Perhaps you could tell the banks to give us a better deal
    in their lending rates to us also seeing as there is money
    in our industry because we havent a penny !!haha.

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