“Bingo Industries: 2019 Investor Day By Nathan Lead 28 June, 2019
Take-outs from 2019 Investor Day
We attended Bingo Industries (BIN) Investor Day and tour of its integrated recycling and landfill sites at Eastern Creek and Patons Lane in Western Sydney.
The DADI integration is tracking ahead of schedule and due to complete June 2020; cost synergies of $15m per annum continue to be expected with the initial $7.5m from early FY20 (as per our forecasts). BIN continues to target enhancements to the site, with the approvals being pursued to increase annual landfill volumes (+300ktpa) and operating hours, and capital being deployed to build the second material processing facility (MPC2).
BIN continues to expect $20m EBITDA from Patons Lane due to commence operations shortly, albeit earnings will be skewed to 2H20 due to the deferred start-up of the redesigned recycling facility. In addition to the sale of Banksmeadow (ACCC requirement), sales of at least two other sites are likely in FY20 as BIN reconfigures its network for Eastern Creek and Patons Lane.
Capex guidance for FY20 is higher than we anticipated at $130m.
Uplift from landfill levies
BIN cautions investors about being overly bullish on the impact of Post-Collection gate fee increases in Sydney resulting from the $75/t QLD landfill levy commencing 1 July. Realised pricing will settle over FY20 as competition and volumes reach equilibrium. While acknowledging this, we are becoming increasingly confident that BIN will benefit from the change (particularly its landfills).
We now factor in a $15/t average price increase delivering a $20m EBITDA improvement in FY20. This is well below the price increase BIN is targeting. At a $35/t uplift we estimate the EBITDA improvement could be closer to $50m. BIN could also benefit from the Victorian Government matching the landfill levy announced by the SA Government, potentially adding approximately $8-$14m of EBITDA.
Forecast upgrades
BIN was not willing to discuss in detail its EBITDA outlook for FY20. However, key earnings influences will be new earnings from the DADI acquisition and greenfield Patons Lane investment, site exits (eg. Banksmeadow, St Marys), continuing weakness in Sydney residential construction volumes, impact of changes to landfill levies (particularly QLD and potentially VIC), and improvement in Victorian operations.
Material forecast upgrades from the Sydney gate fee increases, partly offset by network volume decline, see EBITDA growing from $105m in FY19F to $183m in FY20F, albeit we don't ROCE anywhere near the mid-teens that BIN is targeting over the medium term.
Valuation update
We increase our DCF valuation and share price target as a result of forecast changes (+29 cents per share) and valuation roll-forward to June 2020 (+6 cents per share). Our target price implies 9.5 EV/EBITDA and approximately 18x PER (FY21F basis). We retain our Addrecommendation.
Downside risk is a more severe or prolonged construction slowdown in Sydney.”
