Cleanaway holds steady, lifts dividend

Waste management company Cleanaway has managed to keep profit on par with 2019 despite the impact of the pandemic.

Garbage bins await Cleanaway collection.

Cleanaway shares soared on Wednesday after the waste management operator revealed it had managed to maintain profitability and pay an increased dividend in the face of the COVID-19 pandemic.

Cleanaway delivered a full year net profit of $112.6 million, down 6.6 per cent from 2019, with the final result impacted by adjustments of $37.4m related to acquisition costs of rival Tox free, recycling company SKM and costs related to a fire at a Perth recycling facility.

pre-tax earnings increased by 2.5 per cent to $473m and a final dividend of 2.1 cents a share was declared, bringing the full year dividend to 4.1 cents a share, 15 per cent above last year’s payout.

Cleanaway closed at $2.43 a share on Wednesday, up 8.5 per cent.

Cleanaway CEO Vik Bansal said the company’s result highlights the “defensive” nature of the waste management business.

“Each of our operating segments – solid waste services, industrial and waste services and liquid waste and health services – performed well during the year despite the effect of COVID-19.

“We have reached the halfway mark in our Footprint 2025 journey and I believe we have created strong foundations for the future growth of the business.”

Solid waste services revenue increased by 0.8 per cent to $1.37bn and liquid waste and health services revenue increased by 3.8 per cent to $513.6m.

However, industrial and waste services revenue fell by 8.3 per cent to $313.4m, which the company attributed to reduced exposure to lower-margin, less specialised services.

Cleanaway said the COVID-19 pandemic hurt the business most in Victoria, although activity in the state increased over June.

The company did not benefit from the JobKeeper wage subsidy program.

Cleanaway did not provide official guidance, citing COVID-19 uncertainty, but outlined plans to continue developing a plastic pelletising plant in Albury in NSW, alongside Pact Group and Asahi Beverages, which will turn plastic bottles into food packaging.

Demand is assumed to remain strong for municipal waste collection, health waste management and recycling, while the small and medium business segment will be impacted by the continuing economic downturn.

In a note, analysts from Goldman Sachs said Cleanaway performed well throughout the year but noted the company was vulnerable to continued weakness in the Australian economy.

Analysts from Ord Minnett said the result was broadly in line with guidance, noting that with $421m in headroom under existing banking facilities, the company had the freedom to deploy capital over the next year.

Goldman Sachs set a target price of $2.33 a share and Ord Minnett set a target of $2.40 a share.