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Consolidation gains continue at Biffa

With a highly fragmented industrial and commercial waste market, the group’s acquisitive strategy continues to propel growth in the largest division
June 5, 2019

With the ongoing waste import restrictions in China, Biffa (BIFF) is continuing to feel the squeeze – the underlying operating profit margin in resources recovery and treatment fell by 1 percentage point to 5.2 per cent in FY2019. But more than a year since the sudden regulatory changes were introduced, the group has adapted to offset the adverse impact. Re-configuring its operations, the group sells more waste into the UK, European and other Asian markets and is now altering contracts to reduce exposure to volatile recycling commodities prices in the long term.

IC TIP: Buy at 230p

Accounting for over 55 per cent of overall revenue, the industrial and commercial (I&C) business saw 8 per cent revenue growth to £608m. Organic growth of 3.2 per cent has been underpinned by new contract wins, as well as reduced customer churn. Continuing its acquisitive growth strategy, the group made seven acquisitions throughout the year, driving 4.8 percentage points of the increase in sales. Despite being the leader in I&C waste, the group enjoys only an estimated 10 cent market share. With smaller operators suffering lower margins and a lack of economies of scale and route density, the group sees further opportunities for consolidation.

For chief executive Michael Topham, while the UK policy environment is “relatively benign here and now, it is what is coming next that is interesting”. He notes that just the prospect of a tax on plastic packaging with less than 30 per cent recycled content has increased demand for the group’s recycled plastic. Investing £27.5m in a specialist PET plastic bottle recycling plant, the group is well-positioned to capitalise on potential regulatory changes.

Analysts at JP Morgan Cazenove have revised forecasts upwards, and now expect adjusted pre-tax profit of £71.4m and EPS of 23.4 for the March 2020 year-end, rising to £76.2m and 25p in FY2021.

BIFFA (BIFF)    
ORD PRICE:230pMARKET VALUE:£575m
TOUCH:228.5-230p12-MONTH HIGH:268pLOW: 172p
DIVIDEND YIELD:3.1%PE RATIO:32
NET ASSET VALUE:144p*NET DEBT:86%
Year to 30 MarTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20150.88-7.5nanil
20160.932.9-5.1nil
20170.99-18.7-10.92.4
20181.0838.312.46.7
2019**1.0921.57.27.2
% change+1-44-42+7
Ex-div:27 Jun   
Payment:19 Jul   

*Includes intangible assets of £341m, or 136p a share

**52 weeks ended 29 Mar