Shares in waste management firm Biffa (BIFF) fell 3.2% to 204p after the firm placed 49.99m new shares or roughly 20% of its existing capital at 200p, a 5% discount to Thursday’s closing price.
When it posted its annual results on 5 June, the company said it had ‘sufficient liquidity to trade through all modelled scenarios’, but it also prepared the market for an equity raise ‘to allow it to continue with its growth investment opportunities without delay.’
OPPORTUNITY KNOCKS
Biffa says it has ‘a clear and ambitious medium-term strategy for growth, based on £250m of identified organic and inorganic investment opportunities across waste collection services, closed-loop plastics recycling and energy from waste infrastructure.’
More specifically, it expects ‘a number of opportunities will arise in particular in its Industrial & Commercial ('I&C') business, and balance sheet strength will allow the Group to move swiftly to take advantage of additional accretive distressed opportunities.’
Without the £100m from the placing, Biffa believes its leverage - or net debt to earnings before interest, taxes, depreciation and amortisation (EBITDA) - could hit between 3 and 4 times by the end of the financial year ending in 2021 against its target of two times.
That level of gearing would ‘increase the period for which the mitigating actions implemented by management, in particular in relation to putting M&A in abeyance and restricting capex, would need to be in place.’
While Biffa is still within its lending covenants, its ability to invest in capital spending or any kind of corporate activity is restricted, but those restrictions don’t apply to money raised in the equity market.
MIXED VIEWS
Numis, which was one of the brokers placing the shares, says the cash raise ‘transforms the short-term case’ for the company.
It sees Biffa using the capital for three things: M&A in the Industrial & Commercial business, expanding its food-grade recycled plastic manufacturing operation, and building two new energy from waste facilities.
Investec, which wasn’t part of the placing, points to the £50m of existing deals which Biffa is pursuing and which were on hold due to the limits on the firm’s ability to invest. It sees these deals happening ‘sooner rather than later’.
However, it has cut its earnings per share forecast for this year by 12% due to the dilution from the increase in the number of shares and has put its price target under review.
