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Why I think Bingo Industries Ltd is a buy at this share price

Bingo Industries Ltd (ASX: BIN) is a waste management and recycling company with operations across New South Wales and Victoria. The company’s expansion into Victoria began in 2017 and following the recent acquisition of National Recycling Group, Bingo will have 18 facilities spread across the two states.

With more than $140 billion of New South Wales and Victorian infrastructure projects either already underway or set to commence, Bingo expects strong demand for its commercial waste and recycling services to continue. Already this financial year, Bingo has secured several multi-year contracts with the likes of Sydney Trains, Crown Casino Sydney and the M5 tunnel project.

Other key drivers for the sector include population growth, new building approvals, and greater focus on environmental sustainability from individuals, businesses, and governments.

As the amount of waste being produced continues to increase and available landfill shrinks, the waste management industry will be subject to greater scrutiny and regulation. Being a leader of waste product recovery and recycling, Bingo should benefit from tighter regulation, as higher standards remove non-compliant operators from the market and raise barriers to entry.

Through its in-house reprocessing capabilities, Bingo is recovering 75%-85% of waste materials into saleable end products. This is an enviable and sustainable business model that generates revenue from both waste collection and reprocessed materials.

While Bingo’s entry into Victoria is well underway with four facilities acquired, the company believes expansion into Queensland is also on the cards, should the state government re-establish the landfill levy. A landfill levy provides greater incentive to recycle and therefore creates an attractive market that Bingo would seek to enter.

Following its IPO in May last year, Bingo’s FY2017 financial results were released in August with a slight beat on the prospectus estimates. Bingo reported pro forma profit, adjusted for IPO impacts, of almost $32 million which was 3% higher than forecast. FY2017 revenue and statutory net profit rose significantly from the previous financial year, up 47% and 45% respectively.

Bingo had significant long-term borrowings of $132 million as at 30 June 2017, following several recent acquisitions and did not pay a dividend. However, the firm did generate positive operating cash flow in FY2017 and had a comfortable interest coverage ratio of 13.75x, calculated using statutory EBITDA.

Looking ahead, Bingo expects to increase FY2018 revenue by 23.3% and pro forma net profit by 27.2% compared with the prior corresponding period. This would place Bingo on a forward price to earnings ratio of 27, which isn’t unreasonable given the company’s growth prospects.

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Motley Fool contributor Ian Crane has no position in any of the 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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