ESG Focus: Game on for Cleanaway And Bingo

ESG Focus | Jan 22 2021

This story features CLEANAWAY WASTE MANAGEMENT LIMITED, and other companies. For more info SHARE ANALYSIS: CWY

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future:

A new era is dawning for the waste industry and Australia's two major waste-management companies are going to have to shape up if they want to catch the tide. Just sometimes, the devil is in the detail.

ESG Focus: Game On For Cleanaway And Bingo

By Sarah Mills

-Transparent communications critical to attracting funds
-Vic Bansal's resignation ushers in new era for Cleanaway Waste
-Predators eye off family-controlled Bingo Industries

This is a quick ESG review of Australia’s two biggest ASX-listed waste companies, Cleanaway Waste Management ((CWY)) and Bingo Industries ((BIN)), in the light of recent corporate activity: the MIRA ((MQG)) bid for Bingo, and the resignation of Cleanaway chief Vic Bansal.

Waste is a pivotal industry in the new ESG economy. It will be the receipt of billions of dollars of infrastructure funding, and is teetering on the verge of disruption.

Readers may remember the previous review of the two companies' annual reports in which Cleanaway fell short on articulating its strategy and sustainability goals, burying the sustainability report. This compared poorly with nearly every other major Australian company which led on sustainability.

This can be an expensive headline error for companies seeking to attract ESG funds.

A couple of months later, Cleanaway appeared to attempt to bridge this gap with its November 30 Cleanaway Investor Series titled Energy to Waste. Unfortunately it fell short. 

Cleanaway’s leading “Value Creation Story” was complex, poorly articulated and littered with grammatical errors, further obfuscating the message.  

The grammar was cleaned up slightly for the next presentation in the series published on December 18, but the fundamental issues remain. While tactics and deliverables abounded; the strategy was murky.

If failing to give sustainability its proper due in the annual report was a headline error, the above-mentioned problems with the Investor Series reveal a deeper error.

While grammar and strategic clarity, may seem to some as lower order issues, they are fundamental to attracting money.

Investors are busy people. The purpose of grammar is to provide clarity and ease of reading. Every minute spent deciphering copy is a minute lost.  In large poorly articulated presentations, this could amount to hours. Only those that must, persevere.

Worse, however, is the report’s failure to clearly articulate a sustainability strategy. The fundamental issue here is weak “communications”. At risk of repetition, communications, both verbal and written, are fundamental to attracting funds.

Green bonds, for example, are linked to “use of proceeds”, and reputable ESG investors are seeking to avoid greenwashers seeking to jump on the ESG gravy train. Transparency is critical to making such assessments. Clarity is critical to creating transparency, and clarity hinges on good communication.

Good communications are expensive, and perhaps Cleanaway’s failure to recognise their importance is just a legacy from the pre-ESG waste area, in which waste companies were relatively unsophisticated businesses, and communications were deemed an unnecessary expense. 

Vic Bansal has a strong record of deliverables and his verbal communications have helped him get the job done in this early transition phase. Cleanaway, for example, appears to have gleaned more support from establishment investors than the family-run Bingo.

But more recently, Bansal’s management style was questioned, drawing a reprimand from the board for bullying. While Bansal’s management style was successful in the past, the more recent chain of events suggests a new era has dawned and a new style of management is required.

This week, Bansal announced his decision to resign and the share price dutifully backtracked in his honour. It will be interesting to see how his successor manages the myriad of challenges facing the industry.

Bingo Industries is another story. 

Bingo’s sustainability reports and strategy were very well communicated – it had the hallmarks of a consultancy. This suggests no expense was spared to ensure the company was well positioned to court investors – and it may well need friends.

The company is controlled by the Tartak family. The founding familiy's equity stake is now a minority but Daniel Tartak is CEO. That a Macquarie led consortium has launched its highly conditional $2.3bn bid is indicative of just how attractive those assets might be in a post-ESG world.

The listed Bingo has struggled to shrug off the stench of its exposure to the scandal-plagued waste-management industry. But its recent communications support the company’s vocalised commitment to professionalising the sector.

Bingo owns the largest network of recycling and resource recovery centres in NSW and Victoria. One hurdle for the bid is Bingo’s share price, which is trading at roughly 15x times forward earnings before interest.

Given the prospective flow of ESG funds plus new business opportunities towards the industry, the valuation does not appear too onerous.

It is difficult to discern from the press release management's opinion of MIRA muscling in on its turf. There is no doubt that establishment investors such as Macquarie Group would want to wrest control of such an infrastructure prize from its family founders. 

The Federal Government last year earmarked $1.75bn of funds in the Recycling Modernisation Fund and the Modern Manufacturing Strategy; plus another $100bn of direct infrastructure investments. 

Green bond financing meanwhile, has cracked US$1trn, and is projected to rise up to 50% in 2021. The funds will flow.

The high number of individual shareholders on the Bingo share register may hinder its ability to make friends and influence enemies in an era that will most likely require a large amount of joint-ventures and funding agreements. Simply Wall St notes that individual shareholders outnumber institutional investors on the register.

It is notable the MIRA bid is conditional on the sale of equity stakes by CEO Daniel Tartak's and non-executive director Ian Malouf's (from Dial-A-Dump, acquired by Bingo Industries in 2019). Combined, the pair hold 34% of the company.

If successful, it is possible Bingo, like Cleanaway, may usher in new management.

Separately, the Australian Federal Police raided the Sydney eastern suburbs home of Malouf on behalf of the Australian Securities & Investment Commission (ASIC) in November, investigating allegations of insider trading.

There are some massive players globally in waste. It will be interesting to see if the bid catches their attention.

The game is on for both Cleanaway and Bingo in 2021. 

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