Bingo Industries Limited

DADI Acquisition: Bingo Industries Limited (ASX: BIN) provides complete waste management and environmental solutions across the waste management supply chain. The services of the company include skip bins, liquid waste, recycling centres, commercial waste, contaminated soils, and sand & soil supplies.

DADI (Dial a Dump Industries) is an integrated recycling & waste management company based in New South Wales and operates across the waste value chain from collections, to recycling, landfill and recycled product sales. Bingo acquired DADI on March 2019.
 
The strategic rationale for the acquisition includes complementary post-collections assets, opportunity to transform the future of recycling and resource recovery in Greater Sydney. Additionally, the acquisition will diversify Bingo’s product offering with the expectation of delivering $15 million of annualised cost synergies. Moreover, Eastern Creek facility will provide a platform for the ongoing diversification into Commercial & Industrial (C&I) waste processing.
 

1HFY19 Financial Summary (Source: Company Reports)
 
The company has posted a strong revenue growth during the first half of 2019, with net revenue up by 25.4% to $178.7 million.Moreover, BIN enjoys strong cash conversion of 103%, which suggests that the business generates strong free cash flow to support growth. However, the statutory net profit was down by 24.9% to $13.4 million in 1HFY19. Moreover, underlying EBITDA margin decreased by 530 bps to 25.5% in 1HFY19 as compared to the prior corresponding period where the same was 30.8%. This was weighed by the number of sites being offline for redevelopment, the initial impact of lower margins in the Victorian business, increased volumes of lower-margin material in post-collection, as well as a rise in the corporate costs.

Strategy Going Forward: The company has a vision to be an advocate for change in diverting waste from landfill, investing in new technology to increase recovery rates, enhance industry transparency on recycling practices and process materials for re-sale and re-use. However, the company plans to diversify end-markets to continue to reduce exposure to cyclical markets. Moreover, it has a 5-year growth strategy through protecting & optimizing the core business areas, geographic expansion, and enhanced vertical integration.

As a result of the network reconfiguration and acquisition of DADI, the network capacity of the company will expand to 4.7 million tonnes per annum by FY20. Its strategic network of waste infrastructure assets in key locations across Melbourne and Sydney, is of primary importance to the 5-year growth strategy. Bingo’s post-collections and recycled revenue contribution shifted from 47% to ~70% of the group revenue post DADI acquisition.
 
Along with the aforesaid facts, the company enjoys a healthy balance sheet position. Looking at the historical price performance, the stock has been volatile as it gained 13.47% in last 3-months and went down with a negative return of 16.52% in the past 6 months. Currently, the stock is trading towards the lower end of its 52-week trading range, indicating a decent opportunity for accumulation. Hence, we maintain our “Speculative Buy” recommendation on the stock at the current market price of A$1.925 per share (up 1.583% on 29 May 2019).
 
 

CANN Group Limited

Decent Outlook: CANN Group Limited (ASX: CAN) is engaged with the operations of breeding, cultivating & manufacturing medicinal cannabis for sale and use within Australia and internationally. Among the major expansion program comprising world facility, the company purchased Mildura site for $10.75 million for construction of facility comprising world scale greenhouse & associated support areas and expected production capacity of up to 50,000kg of dry flower per year. The company will fund $130 million in construction cost using mix of debt (progressing) & existing balance sheet equity. The company has a manufacturing partnership with IDT Australia as it provides manufacturing support to the company in relation to cannabis-based product formulations. Moreover, it has entered into a supply agreement with Victorian DHHS for the supply of cannabis plant extract or resin. The estimated global legal market is expected to be ~US$232 billion by 2027, with huge opportunity for the company to grow, precisely access to cannabis in Australia being legalised in 2017, state hurdles being removed.
 

 
Consolidate Profit & Loss Statement 1HFY19 (Source: Company Reports)

The revenue from ordinary activities of $95K consists primarily of research and development credits received totalling $92K, and the remaining $3K consists of revenue from ordinary activities received from the sale of products. The net loss from ordinary activities increased by $3.436 million to $4.898 million, primarily on higher R&D costs, administrative & corporate costs, and fair value adjustments on biological assets.
 
Expectations Ahead: Going forward, the company is committed to maintaining strong momentum. The company expects to progress in the development of a range of new dosage forms, suitable for patients in Australia and in overseas markets. CANN is ready to step up its engagement with the medical community as it supports a streamlining of the requirements for patient access. Additionally, it will help the medical professionals to ensure that they have the resources which are required to make decisions on the suitability of medicinal cannabis treatment for their patients.
 
Meanwhile, the stock has given a negative return of 8.40% over the past one month and 24.57% over the past 3 months.With the higher operating cost burden, the bottom-line remained under pressure, however, it has growth opportunities, going forward, underpinned by strong global opportunities and expansion programs by the company. Hence, we recommend a “Speculative Buy” rating on the stock at the current market price of A$2.220 per share (up 1.835% on 29 May 2019).
 

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.