Having watched Bingo shares for some time I feel strongly that this stock has emerged as the best current takeover target on the ASX.
The 10 major reasons supporting this assessment are as follows:
At an approximate current market capitalisation of $1bn, the cheque size required for this acquisition would meet the requirements of a broad range of potential buyers across private equity and corporate entities
An accommodative balance sheet would provide any required financial engineering flexibility (particularly for any private equity style acquirer, who would likely need the business to be able to carry debt to fund the acquisition)
The current Bingo valuation likely gives enough room for various forecast internal return objectives to be met
Original IPO price of $1.80 means the founding family are most probably agnostic to taking the business private again at current share price levels (for them it would simply be a round trip)
While reported guidance has been masked by the dynamic of a newly listed business and takeover (the later which has now been formally completed), the underlying growth profile of the industry would give buyers the confidence for the long term
This is a defensive cash flow rich industry representing favourable thematics across waste management, recycling, east coast infrastructure spending and a generally strong desire for society to be more environmentally friendly. If there is one thing investors have seen over the years it is that acquirers like defensive cash flow generative businesses
In addition to the favourable industry dynamics, aside from the broader macro drivers, management also has micro levers they can implement to sustain earnings. This includes ongoing network expansion, vertical integration and technology improvements. These factors give any buyer more room for error
Reduced building activity has contributed to the share price declines, however with housing starts hitting historical trough levels, there is a strong argument that the cycle is close to turning now
The founding families are also hands on value generators. These families are now represented by the new generation who are clearly young and hungry. They are not "caretaker" management teams but true owners of the business that are supportive of long term value generation. They also have the personal balance sheets to support and/or facilitate a takeover of the company. Aside from the founding families, there are also no major shareholders who own a large enough holding in the company to frustrate any takeover
Finally, with a share price that was heavily sold off on ACCC and earnings outlook concerns earlier in the year, every day the share price recovers means the window for buyers closes a little more. This therefore creates a powerful catalyst for potential buyers of the company to move sooner rather than later
BIN Price at posting:
$1.78 Sentiment: Buy Disclosure: Held
