I'm a sucker for regulation-based moats and tons of compounders are built on these boring industrials. My qs would be what is what is the actual process of getting the permit and why are the permits so scarce?
Thank you for the comment! Permits are “scarce” in because it’s not one permit but a stack of them, and any layer can stall you for years. New or expanded waste treatment typically needs zoning/planning fit, environmental decision with public participation, fire-safety, building sign-offs, etc... Each step is appealable, and waste projects are "NIMBY" magnets, so opponents often litigate.
In Poland, post-2018 (after waste fires) rules got stricter (fire safety, monitoring, storage). This raised capex and paperwork and squeezing out weaker operators. So basically incumbents with existing permits and tonnage “rights” (like Mo-Bruk) have capacity that’s hard to replicate fast which translates to real moat and pricing power. So the "permits moat" is not some magic really but it is bureaucracy, courts, politics, and (lot of) time.
I am curious how your discount rate for calculating the present value of terminal value is coming off 0.36. Assuming a 4% growth after 10 yrs I get (1+0.04)^11 or 1.539. For calculating present value that comes off as inv(1.539) or ~0.65. Or is my math off somewhere?
Hi there, your math is fine with those inputs and formulas, but but I believe the inputs and formulas are incorrect. 0.36 is the discount factor for 10 years at the WACC, not for 4% growth. The growth rate is used to grow the cash flow from Year 10 to Year 11 (and for the perpetuity), not to discount the terminal value back to today. Also, the growth for perpetuity should be generally set conservatively (since it's for perpetuity:), that's why I go for 2.5%, the 4% was growth in the final years of projection (2032-2035). Also, about the exponent, the ^11 only makes sense if you were discounting something that occurs 11 periods out, we are assuming 10 periods out (discount from the end of year 10). Even if you used 11, you’d still discount with WACC, not g.
If terminal value is calculated at the end of Year 10, you discount it back with: inv((1+WACC)^10), i.e. inv((1+0.1033)^10) = inv(2.67) = 0.37, rounded down to 0.36 in our analysis as a conservative haircut, which slightly reduces PV of terminal value. :)
Impressive breakdown of the permit-moat thesis. The part about Poland's ecological bomb cleanup (PLN 300M annually 2025-2027) as a structural demand driver is often overlooked when people evaluate waste processers. I've seen similar regulatory shifts create value in other tightly-permitted industrials but the key is always enforcement durability. One question tho, how much confidence do we have in the WIBOR + 3% spread assumption holding if Poland's macroeconomic enviroment shifts?
Thank you for the comment and I agree! I’m not “confident” in WIBOR + 3% as a precise point estimate, per se. I use it as a sane placeholder for cost of debt today, then I bracket it. WIBOR is the macro leg. If Poland’s rates shift, WIBOR moves with the curve.
The +3% is the credit spread leg. That typically doesn’t swing wildly unless the company’s leverage/credit profile deteriorates. Also, for a low-leverage business, this assumption usually isn’t a thesis-breaker. The bigger driver is the discount rate and the cash flow path, not whether the cost of debt is WIBOR+3% versus WIBOR+4%, in my opinion. :)
I'm a sucker for regulation-based moats and tons of compounders are built on these boring industrials. My qs would be what is what is the actual process of getting the permit and why are the permits so scarce?
Thank you for the comment! Permits are “scarce” in because it’s not one permit but a stack of them, and any layer can stall you for years. New or expanded waste treatment typically needs zoning/planning fit, environmental decision with public participation, fire-safety, building sign-offs, etc... Each step is appealable, and waste projects are "NIMBY" magnets, so opponents often litigate.
In Poland, post-2018 (after waste fires) rules got stricter (fire safety, monitoring, storage). This raised capex and paperwork and squeezing out weaker operators. So basically incumbents with existing permits and tonnage “rights” (like Mo-Bruk) have capacity that’s hard to replicate fast which translates to real moat and pricing power. So the "permits moat" is not some magic really but it is bureaucracy, courts, politics, and (lot of) time.
I see. What would it take for a new entrant w deep pockets to get a similar number of permits as Mobruk?
I am curious how your discount rate for calculating the present value of terminal value is coming off 0.36. Assuming a 4% growth after 10 yrs I get (1+0.04)^11 or 1.539. For calculating present value that comes off as inv(1.539) or ~0.65. Or is my math off somewhere?
Hi there, your math is fine with those inputs and formulas, but but I believe the inputs and formulas are incorrect. 0.36 is the discount factor for 10 years at the WACC, not for 4% growth. The growth rate is used to grow the cash flow from Year 10 to Year 11 (and for the perpetuity), not to discount the terminal value back to today. Also, the growth for perpetuity should be generally set conservatively (since it's for perpetuity:), that's why I go for 2.5%, the 4% was growth in the final years of projection (2032-2035). Also, about the exponent, the ^11 only makes sense if you were discounting something that occurs 11 periods out, we are assuming 10 periods out (discount from the end of year 10). Even if you used 11, you’d still discount with WACC, not g.
If terminal value is calculated at the end of Year 10, you discount it back with: inv((1+WACC)^10), i.e. inv((1+0.1033)^10) = inv(2.67) = 0.37, rounded down to 0.36 in our analysis as a conservative haircut, which slightly reduces PV of terminal value. :)
A Polish stock. Interesting…
Are you Polish? :)
Yes. I am.
Impressive breakdown of the permit-moat thesis. The part about Poland's ecological bomb cleanup (PLN 300M annually 2025-2027) as a structural demand driver is often overlooked when people evaluate waste processers. I've seen similar regulatory shifts create value in other tightly-permitted industrials but the key is always enforcement durability. One question tho, how much confidence do we have in the WIBOR + 3% spread assumption holding if Poland's macroeconomic enviroment shifts?
Thank you for the comment and I agree! I’m not “confident” in WIBOR + 3% as a precise point estimate, per se. I use it as a sane placeholder for cost of debt today, then I bracket it. WIBOR is the macro leg. If Poland’s rates shift, WIBOR moves with the curve.
The +3% is the credit spread leg. That typically doesn’t swing wildly unless the company’s leverage/credit profile deteriorates. Also, for a low-leverage business, this assumption usually isn’t a thesis-breaker. The bigger driver is the discount rate and the cash flow path, not whether the cost of debt is WIBOR+3% versus WIBOR+4%, in my opinion. :)