Good profit growth and margin expansion year-on-year
Companies: Biffa Plc
It would have been a big surprise if today's Interim results from Biffa (LSE: BIFF) for the 6 months up to mid-September contained any nasties given it only re-listed on the 20th October, but thankfully the Results look solid.
Revenues rose 7% year-on-year to just under £500m whereas reassuring operational leverage pushed underlying EBITDA up 15%. Operating profit margin expansion from 7% to 8% helped Biffa achieve a 23% rise to £40m.
However, there are exceptionals here that are having a material impact on statutory operating profit, reducing it by £27m, the bulk of which is a £20m non-cash hit which relates to a reduction in the discount rate used in its landfill provisions. It is right to strip this out of underlying numbers as it is non-cash and could well reverse as interest rates begin to rise again but it is worth flagging.
The pension deficit has also increased materially over the period, again driven by the drop in discount rates. There has been a £48m swing from a £30m surplus to a £18m deficit. From March 2017 Biffa will make an annual £3.85m payment to the trustees of the scheme to manage this.
The Balance Sheet is critical for Biffa given its historically high levels of debt. At the period end, its net debt had risen to £534m from £506m driven by acquisition. However following the refinance that took place upon admission the Balance Sheet looks a lot healthier:
"On a pro forma basis as at 23 September 2016 based on the new capital structure put in place upon Admission, the Group's Underlying net debt ... would have been approximately £270m, representing 2.1 x last twelve months' Underlying EBITDA."
Looking at valuation, I can't see any consensus forecasts yet for 2017 which is probably because the Banks involved with the listing are still in black-out. However the trailing 12 months underlying EBITDA is £129m, and if the pro forma net debt is £270m and the market cap is £445m, this puts the Group on a trailing EV/EBITDA of 5.5x.
Shares are up a marginal 1.5% this morning and at 178p are close to where they listed in October.