Biffa PLC raises cash to ensure opportunities do not go to waste

The board believes opportunities for distressed acquisitions will arise from the coronavirus crisis

() has raised £100mln of new cash to allow it to continue investing in growth after cashflow was hit during the coronavirus lockdown.

The waste disposal company said on Friday that it had completed a £99mln placing, with the rest coming through a subscription by management and a retail offer via , all at a price of 200p, which it had announced after market close the day before.

READ: Biffa cut to ‘sell’ as Citi warns of M&A pause and possible equity dilution

Chief executive Michael Topham said the money provided “enhanced resilience and financial flexibility” to carry out the group’s medium-term growth strategy.

Under these plans, the FTSE 250 company said it has identified £250mln of “organic and inorganic investment opportunities” across waste collection services, closed-loop plastics recycling and energy-from-waste (EfW) infrastructure.

The board believes opportunities for acquisitions will arise from COVID-19, in particular in its Industrial & Commercial (I&C) business, where having a stronger balance sheet strength will allow Biffa “to move swiftly to take advantage of additional accretive distressed opportunities”.

In a gloomy set of results last week, the group reported that revenues had dropped 30% during the lockdown, with the I&C division particularly affected by lack of demand, while landfill services were hit by reduced volumes but municipal services were still in demand despite having to operate with less staff.

Biffa shares fell 3% to 204p on Friday morning, down 24% since the start of the year.

Broker Peel Hunt noted that Biffa had previously identified £50mln of waste collections deals that were at an advanced stage of negotiation and had been suspended due to Covid-19, rising to £100mln in the medium term, plus £60-80mln of medium-term opportunities in plastics recycling and £70-80mln equity need for EfW.

Diluting its forecasts for the share issue, the broker’s PBT forecasts for 2021 and 2022 move from £29.1mln and £50.1mln to £31.9mln and £53.6mln and earnings per share to 8.8p and 14.3p.

“We do not add value for potential acquisitions, but consider Collections the most probably/positive, although investors do not normally price in ahead of time (EfW is already in our valuation, plastics is BAU). We expect the market to react positively, offset by Biffa’s cyclicality in an uncertain macro environment.”

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