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Consolidating the waste market generates financial and environmental benefits
Thursday 11 Mar 2021 Author: Martin Gamble

Waste management group Biffa (BIFF) is bouncing back from the pandemic faster than management and analysts were expecting.

Biffa has got back into its stride, making bolt-on acquisitions in waste collections and it has just entered a new growth segment through the acquisition of distribution business Company Shop.

The shares have yet to reflect the underlying improvement in the business and its strong competitive position, meaning now is a great time to buy before the market wakes up to the opportunity.

Biffa is the UK’s leading sustainable waste management company with double the market share of its nearest national competitor. It is actively consolidating a fragmented market, having spent £198 million on 45 acquisitions since 2014.

Consolidating the market increases scale and route density (how many stops are made) while squeezing out efficiencies and removing unnecessary trucks from the road, reducing CO2 emissions. This provides benefits to both shareholders and the climate.

Since 2002 Biffa has increased route efficiencies by 20%, reduced emissions by 65% and ceased buying fossil fuel trucks. By 2030 the company aims to reduce its carbon footprint by 80%.

Meanwhile, shareholders have benefited from increasing operational leverage with operating profit growing at a compound growth rate of 18% a year over the last six years.

The cost synergies that Biffa can extract from acquired companies means that it usually ends up paying less than five times earnings before interest, tax, depreciation, and amortisation and thereby enhancing earnings.

The bounce back from the pandemic has been stronger than management and analysts had expected, as communicated in a trading update on 3 March, which should lead to more earnings upgrades from analysts over the coming months.

In addition, the acquisition of Company Shop adds a new, exciting growth business to Biffa which is expected to immediately enhance earnings. This is the UK’s largest redistributor of surplus food, drink and household product, targeting 50% growth in revenue and EBITDA over the next three to four years.

There are an estimated 141,000 tonnes a year of surplus food and beverages suitable for human consumption in the UK. Company Shop has a network of 12 membership-based outlets where employees of fast-moving goods companies and NHS staff and other key workers can purchase the produce at a discounted price.

Biffa also operates a leading plastics recycling business and is building energy from waste infrastructure.

Sustainable growth opportunities and strong green credentials position Biffa as an attractive long-term investment.

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