When Biffa got its discounted initial public offering away last October as other companies were pulling floats, the waste management company said that it was an endorsement of its business. Bears said it showed the lengths that a trio of private equity companies had gone to in ensuring it got away.
The shares were priced at 180p, lower than an expected range of between 220p and 270p, and drifted below that price as dealings began.
Biffa has since published two sets of results, including its full-year numbers yesterday. They were broadly in line with expectations, with underlying operating profit growth but a deeper statutory loss, mainly because of IPO fees.
Brokers were talking up the reassurance the figures would provide to investors, while executives said that the results from each of its four divisions were also in line, helped by the integration of acquisitions last year.
Its energy business, however, where it seeks to generate energy from waste, was a drag. Biffa wants to grow that business and has signed an agreement with Covanta, a US peer, to jointly work on two energy-from-waste projects in Leicestershire and Cheshire.
There was decent growth from Biffa’s industrial and commercial and municipal divisions, where it collects and processes waste and recycling for corporate and public sector customers. A rising population and an expanding economy helped drive revenue, as will acquisitions, which is the temptation for holding the stock.
Biffa invested about £26 million in five deals during the period and has a pipeline of opportunities in a fragmented market. It covers 95 per cent of British postcodes, yet only has a 9 per cent market share in industrial and commercial waste services, its biggest business which accounts for more than half of its revenues.
With decent underlying free cashflow and debt being reduced since the IPO, falling to about 1.8 times underlying ebitda from 2 times, bolt-on deals are set to follow.
The shares have rallied off their post-float lows and remain close to last month’s peak of 200p but an overhang remains on the stock, with the six-month lock-up, preventing its private equity backers from selling, having expired in April. They are yet to do so but a post-results placing is possible.
My advice Avoid
Why Overhang on the stock remains but reassuring signs on performance are emerging
BAT
Trading updates from tobacco companies tend to be as repetitive as a cigarette break. The big manufacturers have churned out rising profits despite declining volumes and prohibitive regulation and taxes by pushing up prices and expanding in emerging markets.
The decision by British American Tobacco, then, to take up new listing rules no longer requiring quarterly trading updates is unlikely to rile some investors. Issuing for the first time a short trading update before its half-year results, BAT said that the business “continues to perform well, in line with expectations”.
First-half volumes have been affected by the timing of shipments in markets including Pakistan, but BAT expects to outperform the market, which it thinks will be down by about 4 per cent over the full year. It also is on course to gain market share, led by its global drive brands.
It continues to make headway with its e-cigarette and tobacco heating brands, the long-term growth market. Glo exceeded expectations in Japan, where it launched in December, and international expansion is planned in the second half of the year. Profit growth should be weighted towards the end of the year, but no surprises are likely.
My advice Buy
Why A reliable income stock adapting to regulatory and competitive challenges
Purplebricks
Purplebricks is the latest British company trying to crack America. The online estate agent yesterday pulled the trigger on its foray across the Atlantic, announcing California as its entry point into an estimated $70 billion market.
Purplebricks raised about £50 million in February in a 220p-a-share placing, just over a year after it floated in the UK, to fund its expansion in the US. California is the largest state in terms of transaction volumes, with 440,000 a year — 40 per cent of the UK.
Starting its adventure from the Golden State is therefore unsurprising. The US business is expected be loss making for the first two years but the prize is considerable, with commission rates typically between 5 and 6 per cent, shared between buying and selling agents.
As with Australia, the other overseas market that Purplebricks has entered, the market dynamics differ from the UK. The company is having to use funds to adapt its platform and technology to consumers’ requirements and the dual-agent market where there is a buyside and sellside commission system.
The expansion comes despite the business facing question marks over its UK business, where it is yet to turn a statutory profit and where bears point to lack of clarity over how many properties it lists are ultimately sold.
My advice Buy
Why Purplebricks has enjoyed rapid growth in the UK and, although not without sizeable risk, the US prize is significant
And finally ....
Severfield’s annual results yesterday were as solid as the steel structures it makes. The company that has worked on Wimbledon’s No 1 Court and the new stadium for Tottenham Hotspur FC reported a 10 per cent rise revenue in £262.2 million and raised the full-year dividend by 53 per cent to 2.3p a share. Pre-tax profit almost doubled to £18.1 million. The reaction? A sell-off that saw the shares fall 2.4 per cent to 82½p — not too far off the year’s high of 88p. It should not have trouble topping that.
