Mid-cap turning headwind into opportunity

Thursday, June 21st, 2018

The Queensland Government recently announced the planned introduction of a levy on landfill waste in the state. This will have implications for the waste management industry in NSW, where over one million tonnes of waste is currently being trucked to QLD landfills each year. One company that stands to benefit from this change is Bingo Industries, which is a fast-growing waste collection and recycling business. Below, we provide an overview of Bingo and discuss the likely consequences of the QLD landfill levy.

Bingo operates in a highly fragmented construction waste collection market, where most of its competitors are small operators. Bingo has brought a much greater degree of professionalism to this industry, including through its proprietary live data system and fleet optimisation. The business is consequently winning market share. Growth is being supported by geographical expansion (from New South Wales into Victoria) and a growing presence in commercial and industrial waste collection. For example, Bingo has the NSW contract for McDonalds. In construction waste, they have won a large number of infrastructure projects, including North Connex, West Connex and the Sydney Metro. The below graphic illustrates Bingo’s growth over the first twelve months since IPO, including significant expansion of operating assets and 37% growth in net profit.

Bingo established a strong position in downstream recycling, capturing more of the waste management value chain. This is the most important area for medium-term growth. The company is currently undertaking a $200 million capital investment to upgrade its recycling facilities, targeting a doubling of capacity from 1.7 million tonnes to 3.4 million tonnes by 30 June 2020. Recycling centres are a cost competitive alternative to landfills and with limited landfill capacity in NSW, Bingo see strong growth in demand for its recycling centres into the medium and long-term.

Related to this growth in demand for recycling centres is the abovementioned QLD landfill levy. Currently, the NSW Government imposes a levy on waste disposed in landfills and QLD does not. This has led to a situation where it is often $30-40 per tonne cheaper to truck waste from NSW to a QLD landfill than to dispose of it here. The QLD Government has now announced that a $70 per tonne levy will be introduced in early 2019. This will completely negate the arbitrage on trucking waste to QLD, so that an additional one million tonnes of waste will remain in NSW.

There have been suggestions that this would be a negative for Bingo. Approximately 25% of the waste that Bingo processes cannot be reused and is currently being trucked to QLD. This is a significant cost line for the recycling business and Bingo will consequently face a cost increase here. However, with an additional one million tonnes of waste in NSW (a 6% increase), Bingo will see an increase in volumes and likely also pricing. It does not take a significant price increase on 100% of waste going through the recycling centres to offset a cost increase on 25% of that waste. Bingo management have been publicly advocating for a QLD landfill levy, which is a clear indication that they can see a benefit to their business from this change.

 

Clime Groups owns shares in BIN.

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