Cleanaway Waste Management Limited

CWY Details

FY21 Performance Update: Cleanaway Waste Management Limited (ASX: CWY) engages itself in the collection services of solid waste streams and includes general waste, recyclables, construction & demolition waste, to name a few. The Group reported resilient financial performance during FY21.

• Revenue from ordinary activities (underlying) increased by 3.2% to $2,406.4 million in FY21, compared to FY20.
• There has been a marginal increase in total expenses by 0.1% to $1,882.1 million during the year.
• The underlying profit after tax of the company stood at $150.8 million in FY21, compared to $150.3 million in FY20.
• The management declared fully franked dividends of 4.60 cents per share for the year ended 30 June 2021 and reflecting a payout ratio of 62.9% of underlying NPAT.
• It ended the period with a cash position of $69.4 million as of 30 June 2021.

Trend in Revenue (Source: Analysis by Kalkine Group)

AGM Update:

• During the meeting the company has updated that it has entered into an agreement with Suez to acquire two landfills and five transfer stations in Sydney. The transaction is expected to complete in the coming months.
• It has emphasised on the resilient performance the company has provided during FY21, despite the COVID-19 headwinds. The management has further updated that the company is eligible to participate in the Commonwealth Government’s Instant Asset Write Off Scheme, which is anticipated to reduce tax payments made by the Group in FY22, FY23 and FY24.

Key Risks: The company’s operations have been impacted due to the onslaught of the COVID-19 pandemic, and the uncertainty of further lockdowns still poses a threat to its profitability.

Outlook: The company’s Industrial & Waste Services undertook significant project activity in FY21 and maintains a similar positive outlook in FY22. However, it has maintained that the duration and nature of NSW lockdowns have impacted its business, though it has been able to partially offset these challenges owing to revenue diversification.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of CWY is trading at par to its 52-weeks' high levels of $2.90. The stock of CWY gave a positive return of ~29.558% in the past one year and a positive return of ~5.01% in the past one month. The stock has a resistance level of $3.00 and support level of $2.65. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price with a correction of high single-digit (in % terms). The company might trade at a slight discount to its peers’ median EV/Sales multiple, considering the impact of COVID-19 on its operations, and decrease in fixed asset turnover ratio, etc. For the purpose of valuation, peers such as Fluence Corporation Ltd (ASX: FLC), Scidev Ltd (ASX: SDV), Aurizon Holdings Ltd (ASX: AZJ) and others have been considered. Considering recent rally in the stock price, lower current ratio, current trading level, valuation, and the other key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $2.90, as on 22 October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

CWY Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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