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 Solid 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 14 July 2020, the market capitalization of the company stood at ~$1.24 billion. 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 NPAT of $22.3 million.
During the year, the company witnessed a steady growth of 31% in operating free cash flow to $116.5 million with a cash conversion of 109.8%. The company has also reported a healthy pipeline of work in hand with significant growth in C&I opportunities and sustained momentum in transport, and social infrastructure project wins across NSW and VIC. The Board declared a final dividend of 2 cents per share, bringing the total dividend to 3.72 cents per share.
During 1H20, the company reported decent results despite a challenging environment. It continued to witness a positive trend in margins and reported a growth in earnings. BIN has 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 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: Refinitiv, Thomson Reuters)
Increased Profitability and Shareholder Returns: During 1H20, gross margin of the company stood at 60.2%, higher than the industry median of 30.6%. In the same time span, net margin of the company stood at 15.7%, as compared to the industry median of 11.6%. During 1H20, BIN also reported a positive trend in EBITDA margin to 31.4% higher than the industry median of 19.1%. 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 more 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: Refinitiv, Thomson Reuters)
Decent Growth in Earnings: During 1H20, the company reported an increase of 50.7% in net revenue to $271.2 million and 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. During the half-year, BIN reported a cash conversion of 90% and a solid momentum in post-collections.
1H20 Financial Highlights (Source: Company Reports)
BINGO Secures Approval for Modification 6 at Eastern Creek: The company stated that Independent Planning Commission of New South Wales has approved the proposed modification BINGO’s existing planning approval which includes an increase of the annual landfill limit from 700,000 tonnes p.a to 1 million tonnes p.a. and an increase in the operating hours of the Material Processing Centres to 24 hours/ 7 days per week.
Decent Q3 FY20 Financial Performance: During Q3FY20, BIN reduced its capex by ~$20 million and reported an EBITDA margin of over 30%. It retains a healthy balance sheet backed by ~$700 million of significant property, plant and equipment assets providing operational flexibility during the COVID-19 environment.
Key Risks: The company is expecting further softening in Q4FY20. The C&I end-markets which include shopping centres, property services and hospitality were most impacted where the resultant run-rate C&I revenue impact is currently down ~20%-30%. The company is also exposed to climate impacts, for instance, increased operating costs because of disruption to in supply chain and distribution networks. BINGO is committed to improving its resilience to physical climate risks.
Future Expectations: BIN seems well-positioned to benefit from an increase in the Victorian waste disposal levy in 2020 and expects to achieve growth in the coming years. It is strengthening its foundations for better position for growth. The company has a decent pipeline of opportunities and is focused on enhancing its competitive advantage in technology, customer service and recycling. It is expecting a lower capital expenditure post COVID-19, in the range of $125-$135 million. BIN 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 retains decent fundamentals in the industry characterized by favorable long-term structural and regulatory foundations. It is focused on expanding operating footprint along the East Coast of Australia, concentrating on markets with favorable growth drivers.
The company is likely to benefit from its existing asset base and have 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 that are aimed at fast tracking infrastructure and construction activity.
Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)
Valuation Methodology: Price to Sales Based Market Multiple Valuation
Price to Sales Based Market Multiple Valuation (Source: Refinitiv, Thomson Reuters)
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
Stock Recommendation: Despite the challenges from the outbreak of COVID-19, BIN seems well-positioned to capitalize on the opportunities. It retains a healthy balance sheet backed by significant property assets and has a 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 for further economic deterioration. As per ASX, the stock of BIN is trading at attractive levels, close to its 52-weeks’ lower levels of $1.470, proffering a decent opportunity for accumulation. We have valued the stock using the Price to Sales based market multiple valuation method and have arrived at an indicative target price of lower double-digit growth (in percentage terms). Considering the attractive trading levels, healthy balance sheet and positive long-term outlook despite the deteriorating economy, we recommend a ‘Buy’ rating on the stock at the current market price of $1.87, down by 1.058% on 14 July 2020.
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BIN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
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