Biffa wastes no time in consolidating

Still, the waste management company’s chief executive, Michael Topham, is prepared to take the long view, particularly now that markets have stabilised and prices have started to return to normal levels. “China has effectively set a new global standard,” says Mr Topham. “They’ve done the world a favour; western countries, including the UK, were too happy to just export it without much confidence in recycling.”

That other hot topic in global waste – plastic – also reared into focus in Biffa’s interims, which contained a pledge to build and commission a £15m plastic bottle recycling facility in the UK. The group said it is “considering potential joint venture parties” who can collaborate on the project, but did not specify whether this would involve a funding commitment.

Then again, when it comes to waste, speculation carries relatively low risks, as Biffa’s acquisition record suggests. Since its IPO two years ago, the group has spent around £70m buying smaller rivals, including £20m in the last half. More than half of the top-line growth in the key industrial and commercial (I&C) division came from acquisitions, while integration of acquired businesses helped to lift the underlying operating profit margin by 30 basis points to 9.1 per cent.

Investors should expect more of the same. Mr Topham believes around half of the UK’s fragmented waste industry is made up of similar competitors, leaving plenty of opportunities for further consolidation – and all without incurring competition issues or stretching the balance sheet beyond its comfort zone. Indeed, at two times cash profits, leverage remains consistent with levels when the company listed.

Analysts at JPMorgan changed their forecasts on these numbers, raising their adjusted earnings per share estimate to 19.2p for the 12 months to March 2019, while dropping their 2020 forecast from 21.5p to 20.8p.