The AQSE index holds many attractive early-stage opportunities. After Adsure Services, here’s a second to watch in Q4:
Majestic Corporation is a fast-growing metals recycling company which recycles metals from obsolete mechanical and industrial material, including car catalysts, printed circuit boards, legacy electrical and electronic equipment and industrial metal residues left over from manufacturing and always sources directly from the producer.
It boasts affiliate procurement warehouse locations in the USA and now a wholly-owned subsidiary the UK, alongside long-term suppliers in Italy, Lithuania, Mexico and Australia. In addition, Majestic has affiliate facilities in Malaysia capable of handling thousands of tons a year — and can deliver directly to refineries for reconstitution and resupply into the global supply chain.
Overall, it processes over 30,000 metric tonnes a year and is helping to contribute to the circular economy: decarbonising the supply chain by reducing the need for new metals to be mined. For context, as the world is electrified and EVs go mainstream, ever more metals will be needed — but the environmental impact can be greatly reduced the more metal is recycled.
While Majestic is only a small player at present, it should be able to scale quickly. It boasts a global presence — and was formed back in 2018 when the US, EU, and China imposed tariffs of metal imports — with China implementing its ‘National Sword Policy’ which banned imports on metals for scrap recovery.
The company has a particular focus on the UK market, specifically because the UK has historically been one of the most resource nationalist countries with respect to critical minerals, launching its critical minerals strategy in 2022 and updating it in 2023.
Business segments
Majestic operates recycling within three segments:
E-waste —This segment includes recycling from devices like printed circuit boards, domestic appliances, IT and telecommunication equipment. Leaving e-waste in landfill is usually more toxic to the environment than other types of waste left, because e-waste tends to have chemicals and hazardous materials that can be resealed into the environment when not properly disposed.
European e-waste is expected to double by 2050 if nothing is done, and the EU is working hard to reduce it (for example, with USB standard legislation). By recycling the metals present in waste, they are prevented from ending up in landfill and the metals can also be reused in novel applications.
Catalytic Converters — This segment processes steel and ceramic catalytic converters. For those out of the loop, these are emission-controlling devices built into cars that convert harmful pollutants before they leave the car’s exhaust system to prevent air pollution.
They are one of the most important sources of precious metals such as Platinum, Palladium and Rhodium, and Majestic has developed its own platform specifically to process them.
Base metals — This segment recycles base metals such as copper. The most common source is wires and cables, and is important to the bottom line given copper’s high conductivity, resistance to corrosion and consequently premium selling price in a world desperate for new sources of the red metal.
Corporate advantages
- Niche Focus — Majestic, as a smaller operator, focuses on niche markets that larger competitors may ignore. Not only does this mean less competition, but it’s also a win-win because customers would otherwise have no e-waste recycling options. Further, Majestic can respond to changing customer needs more nimbly than larger companies can, and with better cost efficiency due to its small overheads.
- Sustainability – the sustainability commitments can help Majestic attract customers with high ESG standards. And while the model is to operate as a third party between smelters and companies requiring its recycled metal, it can negotiate better margins by dealing with smelters directly.
- Decarbonisation— recycling used metals is a key part of global decarbonisation efforts as there will be less need for carbon intensive mining. For context, an electric vehicle uses three times as much copper as internal combustion engine vehicles — and more of the world is demanding more metal as electrification develops.
- E-waste —54 million metric tonnes of e-waste are produced annually, on average 7kg for every person on Earth, and the amount of waste has been projected to double by 2050 if nothing changes. As of April 2024, Majestic is part of the United Nations Global Compact, a voluntary initiative connecting thousands of companies globally that aims to promote sustainable and socially responsible business practices.
- Resource Nationalism — countries are taking a more nationalistic approach to secure metal supply, rather than relying on other countries and running the risk of supply chain breakdown. Consider China’s export bans on Germanium, Gallium, Graphite and most recently Antimony. In particular, Majestic has benefitted from the desire to develop stronger palladium supply chains as Russian supply (circa 30-40% of the global total) was shut off by Ukraine War sanctions.
- Specialist Operator — the EU imposes formal regulations on recycling in the form of set collection, recycling and recovery targets for all types of electrical goods. Producers have a responsibility to provide information on re-use and treatment for recycling of their products. Majestic clearly benefits from this legal mandate for obvious reasons.
Financial Results
Full-year results to 31 December 2023 were released on 12 June (blame the new auditory requirements for the length of time).
Revenue increased by some 25% year-over-year to $29.4 million — on a gross margin of 6.9%. Profit before tax rose by a whopping 149% to $1 million, with basic EPS rising from $c1.44 to $c4.17.
Inventory increased by 81% to $15.1 million, and the company held $600,000 in cash at the end of the year. Further, Majestic noted it was expanding recycling capabilities into solar and battery materials; two expanding segments which are key to corporate growth.
Chairman and CEO Peter Lai enthused ‘Today I am delighted to announce the financial results for Majestic to 31 December 2023. Despite challenging market conditions, Majestic has delivered an exceptional performance enabling the Company to grow and expand its offering to existing customers. We are excited for the opportunities ahead as Majestic strengthens its position in the sustainable circular economy technology sector.’
Acquistion
On 3 September, Majestic announced it had entered into a Conditional Share Purchase Agreement to acquire Telecycle Europe, the specialist recycling business located in Deeside, upon delivery of a large number of containers of recyclable materials by 31 December 2024.
The total consideration for the acquisition is up to £2 million, to be satisfied in cash — and is a worthy investment, with the company significantly beefing up its operational firepower within the UK.
For context, the UK generated 1.6 million tonnes of e-waste in 2021 — and Telecycle is already profitable, acting as a tolling agent for Majestic. Currently, Majestic sources recyclable material on ‘an arm’s length’ basis with Telecycle — but now, it will gain a steady supply and also eradicate a potential conflict of interest.
There are significant advantages to the deal: Majestic gets a fully licensed and ISO-certified facility which also provides a wholly owned UK subsidiary for the Company’s e-waste and collection, sorting, processing, and shipping.
The revenue is immediately recognised for this financial year on a consolidated income statement basis — Telecycle’s unaudited 2023 accounts saw the company generate profit after tax of £175,000 with gross assets of £236,000.
And there should be some decent operating efficiencies that will enhance the margins at both sides. Further, this closer relationship should see the company better positioned for growth, both in terms of political support and recycling volumes.
The bottom line
Majestic has seen significant revenue and profitability growth over the past few years and is working in a niche space where it solves an e-waste problem for customers and turns their rubbish into cash.
Watch this space.