Biffa full-year trading seen in line but Chinese headwinds to persist

In an update ahead of its full-year results in June, the waste management company said it has continued to deliver solid organic and acquisitive revenue growth, while underlying earnings before interest, tax, depreciation and amortisation and operating profit growth have been driven by a good operational performance and cost control.

The industrial and commercial division has continued to deliver both good organic growth, underpinned by pricing discipline and reduced customer churn, and acquisitive growth. Meanwhile, Biffa said trading in the municipal arm remains "satisfactory" against unchanged competitive market conditions, while the energy business has continued to perform as expected.

In the resource recovery and treatment division, strong landfill performance has largely mitigated cost and price headwinds from the recent changes in Chinese regulations for the import of recycled commodities, as expected.

Biffa said it expects these headwinds to persist, impacting divisional performance. Still, it remains "strongly positioned" over the medium and long term due to its investment in recycling operations and focus on high quality products.

The company has completed two further acquisitions since the half-year results in November, taking the total number of acquisitions for the year to date to seven with combined targeted annual revenue of around £49m.

"The acquisition pipeline remains robust and further opportunities are being explored," it said.

Numis, which rates the stock at 'buy', cut its target price to 285p from 315p as it reduced its 2019 earnings before interest, tax and amortisation estimate to £81.9m from £87m due to the restrictions on exports of paper recyclates to China. This flows through to an 8% earnings per share downgrade, to 19.2p. For FY20, Numis cut its EBITA/EPS by 5%/6% respectively to £85.6m/20.8p.

At 1040 GMT, the shares were down 12% to 218.50p.