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Bingo leaves nothing to waste

Lex Hall  |  04 Dec 2019Text size  Decrease  Increase  |  
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Bingo hasn't just been collecting building and demolition waste since its humble beginnings more than a decade ago, it's also been busy picking up companies it thinks can boost its earnings.

Bingo Industries (ASX: BIN) began life in 2005 as a four-truck waste collection services business in western Sydney. Fourteen years later, it has more than 340 garbage trucks, a market cap of $1.9 billion and is poised to boost its earnings via shrewd acquisitions.

The company floated in 2017 with a launch price of $1.85. Since then, the share price has risen about 55 per cent, and on a weaker market on Wednesday was trading at around $2.82.

Morningstar began coverage of Bingo Industries last week, setting a fair value estimate of $2.80 a share and assigning it a narrow moat rating, which implies a competitive edge of at least 10 years.

This follows the initiation of coverage on another waste management company, Cleanaway Waste Management (ASX: CWY). Cleanaway is Australia’s largest waste, recycling, industrial and liquids service provider with a network of state-of-the-art facilities, transfer stations, engineered landfills, liquid treatment plants and refineries. 

One aspect of Bingo that appeals to Morningstar analyst Grant Slade is the company’s growth strategy. Waste from construction and demolition isn’t the only thing the company is picking up.

There have been a few bumps along the way, however. The share price almost halved in February this year because of lower earnings guidance linked to the nation's property downturn. 

But there has been brighter news since then. Shares in the company surged by more than 15 per cent in mid October after it announced underlying earnings were expected to rise as much as 55 per cent to a range of $159 million to $164 million in the year to 30 June.

Not bad for a family business that started out in Auburn with 100 skip bins.

Bingo v Cleanaway year return

Bingo’s upbeat outlook is supported by what will be a full-year contribution from its Patons Lane Recycling Centre and Landfill, West Melbourne Recycling Centre, and Dial-a-Dump - which it bought for $578 million this year.

Bingo's integration of Dial-a-Dump - which the competition regulator cleared for purchase in February - is expected to be completed by June 2020, while its transfer station in Mortdale, in Sydney’s south, is also under construction and also on track to be operational in the second half.

A new recycling facility at Eastern Creek in Sydney is also 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.

“We think Bingo’s strategy to fully vertically integrate its operations across the construction and demolition waste management value chain is the right one,” says Slade, adding that the announced $15 million expected in synergies will be key for shareholder value.

Bingo is now looking to replicate this acquisition strategy in Melbourne and Brisbane metropolitan markets. 

A leader who gets his hands dirty

As for management, Bingo gets a Standard Morningstar stewardship rating. The managing director, Daniel Tartak, has not only done every job at the firm – having begun working on the trucks before climbing through the ranks. He’s also the largest shareholder.

At the annual general meeting a few weeks ago, he signalled his intention to increase his stake from 15.19 per cent to 19.83 per cent by purchasing 20 million shares owned by his mother and father. 

At the same meeting, Bingo said it expects to benefit from the NSW pricing increase implemented in July, but is also factoring in residential construction headwinds throughout fiscal 2020.

That’s a risk Slade is alive to.

“Near-term organic volumes will be challenged by the current downturn in Australian residential construction activity.

“But earnings growth will be nonetheless achieved with earnings contributions from recent acquisitions and favourable post-collections price increases more than offsetting weakening market volumes.”

Slade forecasts fiscal 2020 pre-tax earnings of $163 million, toward the top-end of management’s guided range of $159 million to $164 million.

Bingo pays a final fully franked dividend of 2c.

is content editor for Morningstar Australia

Any Morningstar ratings/recommendations contained in this report are based on the full research report available from Morningstar.

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