Heritage-Crystal Clean: Wide-Moat Route Density Business

Sam Sheldon of Punch & Associates Investment Management presented his investment thesis on Heritage-Crystal Clean (US: HCCI) at Best Ideas 2023.

Thesis summary:

Heritage-Crystal Clean provides parts cleaning and waste collection services to the industrial and vehicle maintenance sectors. With 91 branches across 48 states and Ontario, this route density business has a wide moat that continues to increase the company’s competitive advantage as it adds branches, services, and expands geographically. The company also owns and operates the second-largest re-refinery in North America. Historically, the high-margin recurring services segment’s results were masked by the lower-margin refinery business, but new environmental regulations created a structural change that has improved the re-refinery margin profile.

Heritage-Crystal Clean is led by a proven and aligned management team that is utilizing the underlevered balance sheet and significant cash flow to roll up the fragmented services industry. As the oil business becomes more stable, and the collection services grow in scale, there is meaningful share price upside, driven by both organic and inorganic growth as well as multiple expansion.

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About the instructor:

Sam Sheldon joined Punch & Associates in June of 2016. In his role as Research Analyst, he focuses on the firms small, micro and nanocap portfolios. During his free time, Sam enjoys boating on White Bear Lake, cheering for the Green Bay Packers and playing an occasional round of golf.