While brokers reacted to
-February first half results for
-A margin recovery will require a pass-through of rising costs
-Management unveils the BluePrint 2030 strategy
-Prospects for waste-to-energy
In mid-February,
A first half dividend of 2.45cps was underpinned by strong operating cashflow, according to Macquarie.
Management of the integrated waste management and recycling provider guided for second half earnings to be in-line with the first half, excluding the Suez Sydney acquisition completed last December.
Seven of the eight brokers within the FNArena database reacted by setting higher target prices.
Morgans attributed the results to strong revenue growth, particularly in the
However, the results also showed margin contraction, heightened capital intensity and an unexpected step-up in net debt, noted the broker.
As strong volume growth during the half was offset by higher cost of doing business across all divisions, Citi feels a pass-through of these rising costs will be the key to support a margin recovery.
The costs related to higher fuel and Adblue prices, higher costs in Health Services due to covid inefficiencies and higher commodity shipping costs. The company expects these cost pressures will subside in the second half.
The broker feels the medium-term outlook for the company remains bright and believes rational pricing and consolidation will continue to play out across the Australian Waste industry.
Nonetheless, while
Next leg of growth
At first half results, management unveiled an updated strategy termed BluePrint 2030 to integrate and extend the company's network of infrastructure assets to provide a high-circularity, low-carbon solution.
Morgan Stanley views the ambition within the strategy positively and expects more clarity from a series of strategy updates to be announced over 2022.
Cleanaway is investing in world-leading technology to recover energy from waste (EfW) while transitioning to a lower-carbon economy, and now intends to hold 100% stakes in EfW facilities in
Credit Suisse likes the greater control and future optionality this provides compared to the joint venture previously planned for the Sydney EfW facility, which is under review due to changes made to state government policy.
Importantly for Jarden, mid-term margin targets established under the prior Footprint 2025 are being honoured within the new BluePrint 2030 strategy.
Management confirmed margin ambitions across each of the divisions and can see a path to achieving these targets in the medium-term under a normal "business-as-usual" setting.
The broker, not one of the seven brokers updated daily in the FNArena database, maintained its Buy rating and raised its 12-month target price to
Waste-to-energy represents the next key upside for growth, believes
That being said, it's considered too early to attribute meaningful upside to the company's valuation from the new strategy due the capex intensity required and the permitting process, explains the broker. Sims ((SGM)) recently put on hold a planned facility in
In summary,
This is likely to come at the expense of smaller operators with limited access to capital and exposure to only some segments of the value chain, points out the analyst.
The FNArena database has seven broker ratings with three Buy and four Hold ratings and a consensus target price of
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