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 collections, processing, separation and recycling components of the waste value chain. 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. 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 Details

  
Significant Increase in Revenue and Strong Cash Flow: 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 collections, processing, separation and recycling components of the waste value chain. As on 21 April 2020, the market capitalization of the company stood at $1.32 billion. FY19 was a transformational year for the company wherein 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 witnessed an increase of 32.4% to $402.2 million, up from $303.8 million in FY18, and underlying EBITDA went up by 13.2% to $106.1 million. This was mainly due to double-digit growth in C&I revenue and organic entry in C&I in Victoria (VIC), enhanced vertical integration and geographic expansion. The increase in revenue and EBITDA resulted in net profit after tax of $22.3 million. Over the span of 4 years from FY15 to FY19, the company witnessed a CAGR of 43.16% in revenue and 53.25% in gross profit, reflecting the company’s focus on optimizing the returns from its existing asset base. During the year, the company witnessed a steady growth of 31% in operating free cash flow to $116.5 million with cash conversion of 109.8%. The company has also 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. 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 ended 31 December 2019 wherein it reported solid results despite a challenging environment. It continued to witness a positive trend in margins and reported growth in earnings. BIN has strong control over its costs and has a robust pipeline of opportunities.

The company is actively managing its property and infrastructure portfolio to ensure maximum value and enhanced returns and has invested ahead of the cycle to benefit from a rebound in the construction cycle. BIN is also focusing on upgrading its technology and customer portals and hence increased its network to benefit from a 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)

Increased Profitability and Shareholder Returns: During 1H20, gross margin of the company stood at 60.2%, higher than the industry median of 38.3%. In the same time span, net margin of the company stood at 15.7%, as compared to the industry median of 12.8%. During 1H20, BIN also reported a positive trend in EBITDA margin to 31.4%, higher than the industry median of 21.6%. Higher gross and net margin, with elevated EBITDA margin, indicate 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, 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 existing assets. In the same time span, 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 significant proportion of investor funding and a small amount of debt, resulting in a financially stable balance sheet. 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.


Key Margins (Source: Thomson Reuters)
 
Strong Growth in Earnings: During 1H20, the company reported an increase of 50.7% in net revenue to $271.2 million and a growth of 74.8% in underlying EBITDA to $82 million. This was mainly due to cost synergies from the acquisition of DADI and other redeveloped or acquired post-collections assets. The company continued a positive trend in underlying NPAT with a growth of 31.9% to $28.4 million. This resulted in an increase in EPS to 5.8 cents per share, up from 2.5 cents per share. During the half-year, BIN reported a solid cash conversion of 90% and a strong momentum in post-collections. BINGO also maintained a flexible and stable balance sheet with net debt of $321.1 million and a leverage ratio of 2.0x. The company made significant progress in its redevelopment program with fully operational Paton’s Lane advanced recycling equipment and the completion of Mortdale.


1H20 Financial Highlights (Source: Company Reports)

Segment Performance: The company operates in three segments, namely Collections, Post-collections and others. During 1H20, revenue from the collection segment went up by 21.5% to $122.0 million, primarily driven by a full six-month contribution of the DADI collections business and an increase in the size of the collections fleet in VIC. On the other side, Post-Collections infrastructure assets contributed ~70% of the group’s EBITDA, reflecting recent investment in acquired assets and redeveloped sites. During the half-year, revenue of post-collections increased by 55.7% to $162.7 million. In the same time span, other revenue witnessed a growth of 129.7% on the pcp and stood at $39.8 million.

Future Expectations and Growth Opportunities: 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 integration with Dial a Dump will benefit the company and is likely to infuse synergies of $15 million over two years, which will be achieved equally over FY20 and FY21. The company has a strong pipeline of opportunities and is focused on enhancing its competitive advantage in technology, customer service and recycling. 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 significantly invested in a post-collections network of infrastructure assets and expects higher trend growth to continue into FY21 and beyond. 

The company is likely to benefit from its existing asset base and has several factors turning in favor of the business, including the right strategy, the right assets, and the right team in place to capitalize on a compelling growth outlook. BINGO is also likely to benefit from government stimulus packages which are aimed at fast tracking infrastructure and construction activity.


Key Valuation Metrics (Source: Thomson Reuters)

Valuation Methodology: Price to Sales based market multiple valuation (Illustrative)

Price to Sales Based Market Multiple Valuation (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 5.48% in the past one month and is inclined towards its 52-weeks’ low level of $1.470, proffering a decent opportunity for the investors to enter the market. Despite the challenges from the outbreak of COVID-19, BIN remains well-positioned over the medium term to capitalize on the opportunities. The company has a strong balance sheet backed by significant property assets and has sufficient headroom within its existing debt facility. It is confident that it can meet all future cash requirements and has an adequate contingency in place to withstand economic deterioration. Considering the positive returns, trading levels, strong balance sheet and positive outlook despite the deteriorating economy, we have valued the stock using Price to Sales Based Market Multiple Valuation and have arrived at an indicative target price offering an upside of lower double-digit (in percentage terms). Hence, we recommend a ‘Buy’ rating on the stock at the current market price of $1.98, down by 1.98% on 21 April 2020. 

 
BIN Daily Technical Chart (Source: Thomson Reuters)

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