GFL Environmental, Inc.: Investment Research Report
SPRUCE POINT REPORT, 18 August 2020
After conducting a forensic financial and accounting review (inc. multiple former employees interviews), Spruce Point believes shares of GFL Environmental (TSX/NYSE: GFL), a cash degenerative North American roll-up of environmental service companies, are worthless. We find GFL’s CEO Patrick Dovigi has obfuscated connections to what some observers have dubbed “organized crime” – if true, making the stock uninvestable to institutional shareholders and putting its two deals to acquire Waste Management assets and WCA Waste at risk of not receiving Dept. of Justice approval in our opinion. GFL’s executive Joy Grahek fails to disclose her role advising Philip Services (NYSE/TSX: PVH), a dual-listed roll-up of metal and industrial services that collapsed, was pursued by the OSC regulators, settled $80m of shareholder claims, and was described as “one of the great unprosecuted frauds in Canadian business history”. In our opinion, GFL’s leverage is understated by aggressive reporting of revenue and EBITDA, and free cash flow burn is understated by ~60%; this is evidenced by financial restatements without explanation, and by minimizing a material weaknesses of financial controls. We believe GFL’s debt is understated by at least C$460m. We believe its staggering C$5.6bn total debt load, and financial losses make it reliant on new capital to sustain itself, nevermind its desire to grow via increasingly expensive acquisitions. With a meaningful portion of the stock pledged as collateral for loans, we believe there is a real risk that the stock collapses and the auditor fails to sign off on GFL’s financials after reviewing the evidence we’ve amassed.
