The Bingo Industries Ltd (ASX: BIN) share price is up 76% since February and around 11% in just the last week. Are investors onto something, or is it overvalued?
About Bingo Industries
Bingo Industries is a waste management business providing residential and commercial waste services, recycling services and bin manufacturing. It started in 2005 when the Tartak family purchased a small skip bin business.
Why The BIN Share Price Is Rising
The Bingo share price has been rising ever since the ACCC approved the acquisition of Dial-a-Dump Industries (DADI) back in February. Dial-a-Dump is a fully-integrated recycling and waste management services provider that operates in NSW. DADI handles many of the facets of the waste value chain, from collections to recycling, landfill and recycled product sales.
The main benefit of the acquisition was that it diversified Bingo’s business model away from some of the headwinds they were facing.
What Headwinds?
Much of Bingo’s business relies on construction and construction waste. So, with multi-dwelling residential construction (and many other areas of construction) on the decline, Bingo is exposed to the same headwinds that face the property and construction markets.
According to their latest market update, these headwinds have continued through 2H19 and are expected to continue through FY20.
The acquisition of DADI shifted Bingo’s post-collections and recycled revenue contribution from 47% to about 70% of group revenue, meaning the company is now diversified away from some of the risk.
While this is a positive move for the company, and it has clearly been well-received by investors, the headwinds are still present and could continue to impact profits, just to a lesser extent.
Future Strategy
Bingo’s focus now is to expand operations in Victoria and to enter the Queensland market, focusing on operational efficiencies to maintain a competitive advantage. It is likely that this expansion of the business will be one of the main growth drivers over the medium term, so investors should be looking for increasing market share and revenue.
Is it A Buy?
Despite the large share price appreciation over the last few months, today’s price is still roughly 11% below recent peaks, so it’s possible there could be a buying opportunity.
I think the main factors will be the success of the expansion into other states and whether or not construction begins to pick up.
For now, I’d rather invest in one of the dividend-paying companies in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
