Company Overview: Bingo Industries Limited is an Australia-based waste management and recycling company. The Company provides environmental and waste management solutions across the waste management supply chain. Its services include Skip Bins, Commercial Waste, Liquid Waste, Recycling Centres, Contaminated Soils and Education. It provides all types of skip bins to residential, building or construction job. Its Commercial Waste services include front lift bins, rear lift bins, compactors and infrastructure services, specialty bins, diversion from landfill and resource recovery service, and account management and education services. Its liquid waste service categories include septic, liquid and hazardous, industrial, and cooking. It operates waste recovery facilities across New South Wales. Its centers produces recycled products, such as recycled soil, recycled bedding sand, recycled aggregate and recycled road base. The Company also specializes in the disposal of contaminated soils for any size project.
 

BIN Details

Expansion of Footprint Supported BIN in FY 2018: Bingo Industries Limited (ASX: BIN) has evolved and become the fully integrated recycling and waste management company. However, the previous market update on pending results (1H FY 2019) from Bingo raised a few concerns and now the latest result outcome has been better than market expectations. This leads to giving a re-look on the stock for future prospects. Going back in time, it demonstrated robust performance in FY 2018 as it delivered strong YoY growth which was backed by increased operating footprint in New South Wales and VIC as well as exposure towards strong end markets which was supported by economic tailwinds, favourable demographics, and robust construction activity. The company sales have grown at CAGR of 45.8% during FY16-18 on the back of the geographic expansion via synergistic acquisitions, upgradation of existing sites, and continued market share gains in both the Building & Demolition (B&D) and the Commercial & Industrial (C&I) waste sector. The company posted revenues amounting to $303.8 million in FY 2018 reflecting a YoY rise of 44.5%. During the same period, it increased its network capacity to 2.2 million tonnes per annum throughout NSW as well as VIC and is on track to increase the network capacity to 3.4 million tonnes per annum by the year 2020 to meet the increasing demand for recycling. The demand happens to be backed by continued growth in population, unprecedented infrastructure programs in Sydney and Melbourne as well as diminishing landfill capacity. In FY 2018, the company had deployed over $150 million towards recycling infrastructure throughout NSW and VIC to expand the network to 17 resource recovery facilities. Also, the company is possessing a decent position with respect to the margins. In FY 2018, Bingo’s net margin stood at 12.7% reflecting the rise of 3.2% on the YoY basis which reflects the improved capability to convert its top line into the bottom line. Also, its net margin is higher than the industry median of 11.5%. Additionally, its operating margin encountered YoY improvement of 4.1% to 19.4% in FY 2018 as it is also higher than the industry median of 18%. Hence, we believe that the expansion of network and the focus on extracting the synergies from the acquisitions would help the company in achieving growth and might position it well to capture the long-term growth prospects.

 
 
Revenues Trend (Source: Company Reports)

1H FY 2019 Ended with Robust Balance Sheet: Bingo Industries had posted results for 1H FY 2019 in which it generated robust free cash flow, with the operating cash flow rising 33% as compared to previous corresponding period and standing at $47.2 million. Also, the company’s results demonstrate its robust balance sheet which provides ongoing flexibility. On the financial front, in 1H FY 2019, the company’s net revenues witnessed the rise of 25.4% and stood at $178.7 million while the underlying EBITDA encountered 4.1% rise and stood at $45.6 million as compared to the previous corresponding period. However, its underlying EBITDA margin was weighed by the number of sites being offline for the redevelopment, higher volumes of lower-margin material in the post-collection, the initial impact of lower margins in Victorian business as well as a rise in the corporate costs. The company’s underlying EBITDA margin stood at 25.5% which implies a further 200 basis points below the forecast. Also, the company’s statutory NPAT stood at $13.4 million which implies the fall of 24.9% because of the inclusion of transaction as well as integration costs which are related to recent and pending acquisitions. The company has also confirmed that its FY 2019 EBITDA would be broadly in line with FY 2018. Based on a good set of results in 1HFY19, the Board of Directors declared a fully franked interim dividend of 1.72 cents per share which will be paid on March 28, 2019 with the record date of 4 March 2019, and ex-date of 1 March 2019.


1H FY 2019 Financial Summary (Source: Company Reports)

Higher Volumes Supported Collections Segment: In 1H FY 2019, Bingo Industries’ Collections segment had posted revenues amounting to $100.4 million which implies the rise of 27.9% as compared to prior period because of the higher volumes. The EBITDA margin of Collections got impacted because of softening residential construction which had resulted in pricing pressure in November 2018 as well as December 2018. The company stated that Commercial and Industrial (or C&I) business had witnessed robust growth and that it presently comprises 25% of collections business. 

Strong Momentum Witnessed in Post Collections Segment: Bingo Industries’ post-collections happens to be the largest contributor to the group revenue as well as EBITDA. In 1H FY 2019, the revenues from this segment stood at $104.4 million reflecting the rise of 27.7% while the EBITDA amounted to $25.3 million implying a 5.2% rise. The rise in the revenues was mainly aided by contributions from Bingo’s Artarmon and Campbellfield recycling centres as well as growth in the volumes. The company post-collections business had demonstrated robust performance with the external customers comprising 67% of post-collections revenue.

Key Updates: Recently, Bingo had responded to the query which primarily revolved around that when did the company first become aware of revised EBITDA guidance (which also includes any factors that led to the revised guidance). To this, the company had stated that it noted that it would need to give revised EBITDA guidance at conclusion of Board sub-committee meeting which was conducted on February 17, 2019, which wrapped up the review process which is being undertaken by the management in conjunction with BIN’s accounts auditing process as well as half-year results presentation. The review process included the consideration of the performance of the business in 1H FY 2019, recent changes with respect to the market conditions, pricing and volume related options, network reconfiguration and redevelopment options, status and potential timing of the completion of proposed DADI acquisition as well as various cost out strategies.

After it became clear that, in aggregate, the developments had materially altered the expectations of EBITDA, the board decided to issue revised EBITDA guidance. On the other hand, the company had also made an announcement about the resignation of Mr. Ronald Chio as (Joint) Company Secretary of Bingo. However, Ms. Rozanna would remain as the Company Secretary of Bingo with an additional appointment to be made in due course.
 
BIN Provided Market Update and outlook: Bingo Industries had stated that its FY 2019 results are expected to be impacted by a faster than anticipated softening in multi-dwelling residential construction activity, no Bingo price rise in FY 2019 as well as reconfiguration of the development projects. There are expectations that the company’s underlying EBITDA for FY 2019 would be broadly in line with FY 2018. However, the company had earlier stated that the underlying EBITDA would be witnessing the growth between 15%-20%. Moreover, majority of the changes would be impacting the business in 2H FY 2019. We are affirmative on the company at the back of seeking positive momentum in the B&D and the C&I waste sector; robust order book; footprint expansion; operational efficiencies; and continued economic and population growth.


Revised FY 2019 underlying EBITDA guidance (Source: Company Reports)
 
Drivers for Future: The management of Bingo happens to have a favourable outlook, as there are expectations that construction market in NSW and Victoria would be delivering overall volumes of $130 billion per annum over the next few years. Also, there is an opportunity to increase the BIN’s market share in the C&I sector. The management added that FY 2020 would be a transformational year for the company. Bingo Industries happens to have a solid forward order book, and the management has good visibility of the future revenue via the opportunities pipeline. There are expectations for the benefits from capital outlay over last twelve months on the redevelopment program as the key assets come back online, especially recycling as well as landfill asset at Paton’s Lane and the advanced recycling facility in the West Melbourne.

Moreover, the management is of the view that QLD levy would be positive for the business as well as there would be Bingo price rise in early FY 2020 to offset the higher operating costs witnessed in FY 2019. Additionally, there are several tailwinds which might support the company for long-term growth. These factors include continued economic as well as population growth, growing waste generation, strong infrastructure pipeline, sustained overall construction activity as well as the scope to build the market share in Commercial & Industrial business. However, the supportive regulatory environment, the strength in BIN’s network of vertically integrated waste infrastructure assets as well as the maturity of Australian waste market are some of the other factors which might support the company.
   
Stock Recommendation: In the last six months, the stock has fallen 59.49% and is trading at decent PE multiple of 12.80x, indicating undervalued scenario at the current juncture. From the technical perspective, Relative Strength Index or RSI has been applied on the daily chart of Bingo Industries and default values were used for the purposes. After careful observation, it was noticed that, earlier, the 14-day RSI was in the oversold region. However, it can be said that the 14-day RSI had started to rebound from the oversold levels. As a result, there are expectations that the company’s stock price might witness a rise moving forward.

Also, over the long-term, the company is expected to be mainly supported by the continued economic and population growth, maturity of Australian waste market as well as from the strong infrastructure pipeline. However, amidst all these, there some headwinds which the company might face. These include the slowdown in residential multi-dwelling construction, pricing pressure from competition in B&D collections, completion risk, increased regulatory compliance, end-markets for the recycled products as well as exposure to the cyclical end-markets. Given the backdrop of aforesaid facts and current trading level, we have a “Speculative Buy” recommendation on the stock at the current market price of A$1.355 per share (up 5.859% on 26 February 2019).  


BIN Daily Chart (Source: Thomson Reuters)

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