Company Overview: BINGO Industries Limited (ASX: BIN) provides recycling and waste management solutions across building and demolition and commercial and industrial waste streams with capabilities across waste collection, processing, separation and recycling components of the waste value chain. The company operates in three segments, namely Collections, Post-collections and others. The company collects and transports waste from customers to post-collections facilities across two categories – BINGO Bins (B&D) and BINGO Commercial (C&I). BIN also operates a network of 15 sites in NSW and 5 recycling and transfer stations in VIC and has a workforce of approximately 990 people and a truck fleet of approximately 350 trucks across NSW and VIC.
 
 

BIN Details
 

Strong Pipeline of Opportunities and Decent Growth in Revenue: BINGO Industries Limited (ASX: BIN) provides recycling and waste management solutions across building and demolition and commercial and industrial waste streams with capabilities across waste collection, processing, separation and recycling components of the waste value chain. The company collects and transports waste from customers to post-collections facilities across two categories – BINGO Bins (B&D) and BINGO Commercial (C&I). As on 17 March 2020, the market capitalization of the company stood at ~$1.46 billion. In the Annual General Meeting, the management stated that FY19 was a transformational year for the company and the acquisition of Dial a Dump Industries has materially changed the business and established a platform for ongoing growth in New South Wales (NSW). During FY19, net revenue of the company went up to $402.2 million, up from $303.8 million in FY18 and underlying EBITDA witnessed a growth of 13.2% to $106.1 million. This was mainly due to double-digit revenue growth in C&I and organic entry in C&I in Victoria (VIC), enhanced vertical integration and geographic expansion. This resulted in net profit after tax of $22.3 million. In the same time span, the company witnessed strong growth of 31% in operating free cash flow to $116.5 million with cash conversion of 109.8%. During the year, the company reported a healthy pipeline of work in hand with strong growth in C&I opportunities and sustained momentum in transport and social infrastructure project wins across NSW and VIC. Over the span of 4 years from FY15 to FY19, the company witnessed a CAGR of 54.3% in revenue and 46.53% in gross profit, reflecting the company’s focus on optimizing the returns from its existing asset base. The decent financial and operational performance enabled the Board to declare a final dividend of 2 cents per share, bringing the total dividend to 3.72 cents per share. 

The company has also released its interim results for the period ending 31 December 2019 wherein it reported solid results in a challenging environment. The company continued to witness a positive trend in margins and reported growth in earnings. BIN has strong control over its costs and has a solid pipeline of opportunities.

BINGO has invested ahead of the cycle and is expected to benefit from a rebound in the construction cycle together with structural shifts from changes in the regulatory environment. The company is actively managing its property and infrastructure portfolio to ensure maximum value and enhanced returns. The company is also focusing on upgrading its technology and customer portals and hence increase its network to benefit from significant upside from the market turnaround. 


FY19 Financial Highlights (Source: Company Reports)

Details of Top 10 Shareholders: The following table provides an overview of the top 10 shareholders of BINGO Industries Limited. Tartak (Daniel) Ltd is the largest shareholder in the company, with a percentage holding of 19.83%. 

Top 10 Shareholders (Source: Thomson Reuters)

Improved Profitability and Increasing Returns to Shareholders: During 1H20, gross margin of the company stood at 60.2%, higher than the industry median of 38.3%. In the same time span, EBITDA margin of the company was 31.4% as compared to the industry median of 21.6%. During 1H20, net margin of the company stood at 15.7%, higher than the industry median of 12.8%. Higher gross and net margin with elevated EBITDA margin indicates that the company is managing its costs well and is able to convert its revenue into profits, implying increased profitability in the businesses. During 1H20, Return on Equity of the company witnessed an increase over the previous half and stood at 4.6%, up from 1.2% in 2H19. This implies that the company is well deploying the capital of its shareholders and is capable of generating profits internally. In the same time span, current ratio of the company went up to 1.3x from 0.99x in 2H19. This indicates that the company is liquid enough to pay off its current liabilities using its current assets. During 1H20, Assets/Equity ratio of the company stood at 1.62x, lower than the industry median of 2.06x with Debt/Equity ratio of 0.45x. This indicates that the business is financed with a more significant proportion of investor funding and a small amount of debt, resulting in a financially stable balance sheet.


Key Margins (Source: Thomson Reuters)

Significant Increase in NPAT and Flexibility in Balance Sheet: The company has recently released its interim results for the period ended 31 December 2019 wherein it reported an increase in revenue of 50.7% to $271.2 million and a growth of 67.9% in EBITDA to $78.8 million. This was mainly due to cost synergies from the acquisition of DADI and other redeveloped or acquired post-collections assets. BIN also reported a positive trend in EBITDA margin with an increase of 690 bps to 33% and a growth of 31.9% in underlying NPAT of $28.4 million. This resulted in EPS to increase to 5.8 cents per share, up from 2.5 cents per share. During the half-year, the company reported a solid cash conversion of 90% and a strong momentum in post-collections. BINGO also maintained flexibility in its balance sheet with net debt of $321.1 million and a leverage ratio of 2.0x. The company has declared a fully franked interim dividend of 2.2 cents per share which is to be paid on 31 March 2020. The company, in another announcement, stated that 18,538,985 fully paid ordinary shares voluntarily escrowed, will be released from escrow on 24 March 2020.


1H20 Financial Highlights (Source: Company Reports)

Future Expectations and Growth Opportunities: The company has established its operational footprint in NSW and VIC and is focusing on realizing the significant value opportunity from an extensive network of assets. BIN is well-positioned to benefit from an increase in the Victorian waste disposal levy in 2020 and expects to achieve solid year-on-year growth in FY20. The company has witnessed an improvement in margins and expects slight moderation in 2H20. The integration with Dial a Dump will benefit the company and is likely to result in cost synergies of $15 million equally over the next two financial years, FY20 and FY21. 

BINGO Industries Limited is also expected to benefit from ongoing structural shifts in the sector and expects to deliver more value to its shareholders in the coming years. The company has a strong pipeline of opportunities and is focused on enhancing its competitive advantage in technology, customer service and recycling. BIN expects a solid outlook for construction activity and is anticipating ongoing headwinds in multi-dwelling residential construction in FY20. BINGO Industries Limited expects to report Underlying EBITDA in the range of $159 million to $164 million in FY20. The company has significantly invested in a post-collections network of infrastructure assets and expects higher trend growth to continue into FY21 and beyond. 


Key Valuation Metrics (Source: Thomson Reuters)

Valuation Methodologies: 
Method 1- EV/EBITDA Multiple Based Relative Valuation

EV/EBITDA Multiple Based Relative Approach (Source: Thomson Reuters)

Method 2- Price to Earnings Based Relative Valuation

Price to Earnings Multiple Based Relative Approach (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of BIN gave a return of 1.36% in the past six months and is trading near its 52-weeks’ average level, proffering a decent opportunity for the investors to enter the market. The company continued to strengthen its governance framework and has made significant changes in sustainability goals this year. BIN has expanded its total network capacity across NSW and Victoria and is anticipating positive results for shareholders in the coming years. Considering the returns, trading levels, improvement in margins, decent financial performance and modest outlook, we have valued the stock using two relative valuation methods, i.e., EV/EBITDA multiple and P/E multiple, and arrived at a target price of lower double-digit upside (in percentage terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $2.390, up by 6.696% on 17 March 2020.

 
BIN Daily Technical Chart (Source: Thomson Reuters)

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