Bingo takeover bid a potential windfall
The $2.3bn conditional offer is a healthy premium for Australia’s largest waste manager, says Morningstar analyst Grant Slade.
Mentioned: Cleanaway Waste Management Ltd (CWY)
Industrial garbo Bingo Resources (ASX: BIN) is trading at the fair value estimate set by Morningstar analyst Grant Slade following a 27 per cent premium takeover bid by a consortium led by private equity firm CPE Capital.
Shares in Bingo, which has narrow moat, or ten-year competitive advantage, rose by more than 20 per cent on Tuesday to $3.30 following confirmation of a $2.3 billion unsolicited and conditional offer from the consortium, local firm CPE Capital, Macquarie Infrastructure and Real Assets.
Shareholders have been offered $3.50 per share, and a board committee is considering the offer. The indicative offer is a premium to Bingo’s last closing price on Monday of $2.74 a share.
Morningstar analyst Grant Slade is cautious about the deal but says it is attractive to shareholders, and that Tuesday’s share price jump suggests a more than 75 per cent chance of the deal proceeding.
“While remaining at a preliminary stage, the takeover proposal received by Bingo Industries represents a windfall for existing shareholders should it ultimately proceed,” Slade said in a note on Tuesday.
“The indicative cash offer price of $3.50 per share is attractive, representing a 27 per cent premium to our fair value estimate and the stock’s last traded price prior to disclosure of the bid.
“At this price, Bingo's implied enterprise value is approximately $2.6 billion, circa 15 times Bingo's consensus fiscal 2022 EBITDA estimate, thus comparing favourably with waste management peer trading multiples.”
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Earlier in Tuesday trading, the share price reached an intraday high of $3.39, up 24 per cent, which is just 10 cents below the company’s all-time high of $3.49 last February, just before the covid sell-off.
Slade says that while the deal in non-binding, he will reassess his fair value estimate once due diligence and deal financing are nailed down. Bingo last reached fair value in October 2020 and then again in November.
Bingo Industries is Australia's leading construction and demolition, waste management company. By tonnage, the C&D waste stream represents about 40 per cent of total waste generation in Australia, roughly equal in size to the commercial and industrial waste stream.
Another waste manager under Morningstar coverage, Cleanaway Waste Management (ASX: CWY), is significantly overvalued.
Bingo Industries (BIN), Cleanaway Waste Management (CWY) - 3YR
Source: Morningstar Premium
Bingo began life in 2005 as a four-truck waste collection services business in western Sydney. Fifteen years later, it has more than 350 garbage trucks, and a market cap of $2.12 billion based on today’s share price jump.
The exposure to C&D post-collections activities was boosted by the acquisition of Dial-a-Dump Industries in fiscal 2019. A new recycling facility at Eastern Creek in Sydney is under construction and is on track to be operational in the first half of fiscal 2021—the first of the sites to be delivered as part of the Eastern Creek Recycling Ecology Park that underpinned Bingo's purchase of Dial-a-Dump.
Housing recovery a tailwind
Slade continues to see a strong earnings growth trajectory for the building and demolition waste manager especially as the housing market recovers and as prices and waste taxes increase.
“The building cycle bottomed in calendar year 2020 and from 2021 we’re entering recovery so there’s a cyclical upswing in the market in which they play that is building as we speak.”
Slade forecasts a pre-tax 10-year compound annual growth rate of about 13 per cent.
“We expect favourable price increases—as waste levies rise in Queensland and Victoria over the medium term—and operating leverage will drive midcycle operating margins to circa 27 per cent in fiscal 2030 from 18 per cent in fiscal 2020.”
Bingo floated in 2017 with a launch price of $1.85. Since then, the share price has risen about 100 per cent.
Bingo chief executive Daniel Tartak has a 19.8 per cent stake in the company and will be crucial to the success of the private equity bid.