Here’s why Cleanaway Waste Management Ltd shares have gone gangbusters

Credit: Jim Frazier

One of the best performing shares on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) so far today has been Cleanaway Waste Management Ltd (ASX: CWY).

It’s share price has gone gangbusters today following the release of the waste management company’s full year results. In early afternoon trade its shares have climbed a massive 13% to $1.02, much to the delight of its long-term shareholders.

In the last five years the company has produced a reasonably disappointing and inconsistent performance characterised by poorly performing acquisitions and high capital expenditures. But if this year’s performance is a sign of things to come, then Cleanaway Waste Management might start attracting a bit of interest from investors.

For the full year sales revenue may have increased a good 5.1% to $1,455 million, but it was the 38.5% increase in underlying profit after tax to $63.3 million that will steal the headlines.

Management revealed the margin expansion that drove the strong bottom line performance was a result of an increase in collection volumes and greater cost control. Clearly the company’s growth initiative has paid off.

Furthermore, despite a challenging environment all of the company’s segments posted positive EBITDA growth. This put the company in a position to reduce its debt slightly and increase its full year dividend to a fully franked 1.7 cents per share.

For the year ahead CEO Vik Bansal painted a fairly bright picture. He stated that:

“Market conditions are expected to show little change from those experienced during the past year. However, based on the company wide initiatives we are undertaking, both our Solids and Liquids & Industrial Services segments should report increases in operational earnings in FY17.”

So should you invest? Based on its full year earnings per share of 4 cents, Cleanaway’s shares are changing hands at 25x earnings. Considering the inconsistent results of the past five years, I would be hesitant to make an investment at the current price.

In fact, it may take a few years of solid growth to convince me that this isn’t a one-off. Instead investors may want to take a look at other industrials shares such as Brambles Limited (ASX: BXB) or Xenith IP Group Ltd (ASX: XIP).

Alternatively, these three new breed blue chips could be even better options for investors. Each has a growing fully franked dividend and could bolt higher in the next few months in my opinion.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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