Cleanaway (ASX:CWY) shares jumped 1.5% in the second hour of trade on Monday following news the company is acquiring Melbourne garbage truck company Citywide Waste.
Cleanaway’s bread and butter, the acquisition makes clear sense – reflected in the modest gains in CWY shares on Monday. It also helps it now has exposure to Australia’s fastest growing city.
The company also has its eyes on establishing a more entrenched hub in the area. It’s willing to cough up $110M for that privilege – the cost of Citywide to Cleanaway.
What Cleanaway really wants is the Dynon Road Waste transfer station, the second largest in VIC and owned by Citywide.
“The Dynon Road transfer station is a key supplier into our Melbourne Regional Landfill today, making Cleanaway the natural owner of the business,” the company wrote on Monday. It also wants to build-out an expansion of the site.
The company expects redevelopment to be low on capex but “attractive” for earnings growth. They say the wise sell shovels in a gold rush – in the same way, a city that needs its waste handled is a pretty safe bet.
That’s particularly evident, given that the City of Melbourne will pitch in $10M across the next four years to expand the Dynon facility into a larger station. Cleanaway expect to pay $35M.
Notably, earnings growth from the acquisition is presumably to be evident in FY26 onwards – Cleanaway don’t expect to see any meaningful boost through FY25.
While Citywide generated pre-tax earnings of $6.4M “in the twelve-month period ending February 2024,” the company is banking on the Dynon redevelopment being a key money maker.
CWY last traded at $2.73.