Small Caps | Dec 07 2017
Waste management and recycling business Bingo Industries has picked up several acquisitions to further expand its services and brokers suggest it is well primed to stay ahead of the competition.
-Acquisitions considered sound, fitting well within existing strategies
-Strong macroeconomic drivers in the company's markets
-Shaw and Partners expects maiden dividend in first half of FY18
By Eva Brocklehurst
Waste management and recycling company Bingo Industries ((BIN)) is growing its presence in Victoria, having established a diverse, vertically integrated operation in NSW. The company has picked up several acquisitions including National Recycling for $51.1m and Patons Lane Recycling Centre & Landfill for $90m.
Guidance for $89m in operating earnings (EBITDA) is reaffirmed and contributions from the acquisitions should add an additional $4m. Brokers believe the acquisitions are sound and fit well within the existing strategy, while Macquarie expects the landfill solution is a longer-term positive. The main risk now lies in executing on the significant growth profile and bedding down the acquisitions.
The acquisition of National Recycling, centred in Victoria, includes two freehold properties with expected synergies of $6m to be realised within 12 months. Patons Lane is a significant greenfield expansion in western Sydney, in Macquarie's opinion, which would be paid for over three instalments of $30m between December 2017 and July 2019.
Patons Lane is expected to open in FY20 and already has a development approval. The site will require an additional $40m in capital expenditure to become operational. Vertical integration will capture margins associated with ongoing landfill expenses and Macquarie believes the company should be positioned well, should regulatory change occur in Queensland. Queensland is expected to implement a levy to encourage recycling and reduce the amount of waste going to landfill.
A $120m entitlement offer will fund the acquisitions as well as six redevelopments, four in NSW and two in Victoria, for total expenditure of $29.5m. This should add 50% to the network capacity by 2020. The raising will also repay the debt from the Has-a-bin acquisition ($6m).
Macquarie considers National Recycling was a logical takeover target, as Bingo Industries is intent on increasing its exposure to the Victorian market. Historically, this business appears to be primarily focused on waste collection with post-collection capacity expected to come on line in the March quarter next year. Macquarie has an Outperform rating and $2.66 target on the stock.