Biffa collections benefits brought to light by Pennon results, Numis says

Broker Numis said Biffa was one of the top stocks picks in the support services sector as it could be a beneficiary of trends mentioned by rival Viridor this week.

Following comments from Pennon as part of interim results on Wednesday, Numis noted that Pennon's Viridor division, a key competitor of Biffa, had endured weaker performance in its collections business, with adjusted operating profits down 7%.

Analyst James Beard said this read-across signalled positive news for Biffa, which he believes has taken market share in this area from Viridor over the last 12 months.

Beard said it was clear that Viridor is prioritising its Energy-from-Waste division, with significantly more capital allocated than to contracts & collections capex of £13m and management focused on the potential to create increased availability of residual waste for use in EfW post-Brexit.

As for the read-across to Biffa, he said: "We believe that the decline in Viridor’s Contracts & Collections profits is indicative of the company focusing its resources elsewhere, and it is possible that Biffa has been a beneficiary of this, taking market share.

"The portion of improved profitability in Recycling that is due to renegotiation of customer contracts is also positive for Biffa, given that it has been undertaking a similar process."

Viridor's focus on the EfW market underpins the analyst's view that Biffa is likely to invest or partner with investors in this area in the future, though capital deployment on infill industrial and commercial collections M&A to increase density is the medium-term priority.

Numis has a 'buy' rating and a price target of 260p for Biffa.