Cleanaway Waste Management (ASX: CWY) – Neutral
Price: A$2.59 | Price Target: A$2.80
CWY trades at fair value based on our infused valuation.
Earnings are fairly defensive (as the Company has long term rubbish collection contracts with local government).
The solids segment is growing at a slightly higher-than-average GDP rate, with the potential to benefit as CWY’s sales team concentrates more on price increases.
Liquids and Industrial Services are expected to recover and benefit from high oil prices.
A strong balance sheet that allows for bolt-on acquisitions or capital management initiatives.
High entry barriers – difficult to replicate assets & solid margin business
Its Solids segment performed worse than expected.
There will be no or only minor price increases.
Liquids and Industrial Services performed poorly.
Oil prices are recovering slowly or not at all.
China’s National Sword policy imposes additional cost surcharges.
Management fails to meet their key segment margin targets.
While earnings are largely defensive, there is some exposure to cyclical economic activity, which may be a drag on earnings.
FY21 Result Highlights
Net revenue increased by 7.5% to $1,476.3 million; EBITDA increased by 4.4% to $405.3 million; and EBIT increased by $0.3 million to $213.0 million. “FY22 D&A is expected to be higher reflecting full year contributions from acquisitions and municipal contracts that partially contributed in FY21, new municipal contracts that start in FY22 (Logan, Hornsby), the start of operations at the rebuilt Perth MRF, and higher landfill depreciation,” management stated.
The reported EBITDA of $48.0m was +4.6% higher. EBITDA margin was 110 basis points higher than in FY20, owing to the successful implementation of the strategy of exiting low-value workstreams. EBIT increased by $1.2 million to $22.6 million, and the EBIT margin increased by 60 basis points to 7.4 percent.
EBITDA increased by 3.5 percent to $110.0 million, while margins increased by 80 basis points to 21.5 percent. EBIT increased by 5.1% to $67.6 million, and EBIT margins increased by 70 basis points to 13.2 percent.
Covid-19 lockdowns on lower East coast oil collection volumes had an impact on hydrocarbons. Covid-19-related activity at aged care facilities, hotel quarantine, and mass testing and vaccination centres resulted in higher earnings for Health Services.
Despite lower volumes from visitor states, hospitality (grease trap), cruise ships, and automobile industries as a result of Covid-19, liquids and technical services earned more than the pcp.
Cleanaway Waste Management Ltd (CWY) is Australia’s leading total waste management services company. CWY has a nation-wide footprint in solid, liquid, hydrocarbon and industrial services (with ~200 solid, liquid, hydrocarbon and industrial services depots and processing facilities across the country servicing well over 100,000 customers.
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Any advice provided by Laverne is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.