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Down 48%: Why investors dumped BINGO shares today

The BINGO Industries Ltd (ASX: BIN) share price has had a shockingly bad start to the week.

In early trade the waste management company’s shares are down 43% to $1.30. At one stage the Bingo share price was down as much as 48% to an all-time low of $1.20.

Why is the BINGO share price in the dumps today?

This morning the company released a market update which revealed that it has made a sharp downgrade to its full year earnings before interest, tax, depreciation, and amortisation (EBITDA) guidance.

Instead of its prior guidance of $108 million to $112 million in underlying EBITDA, the company now expects underlying EBITDA to be in the range of $92 million to $96 million in FY 2019.

This is an 11% to 18% downgrade and will mean underlying EBITDA is flat on the prior corresponding period.

Why has it downgraded its guidance?

Although BINGO’s post-collections and Toro business units have performed in-line with expectations during the first half of FY 2019, management expects a weaker second half.

This is due to a faster than anticipated softening in multi-dwelling residential construction activity across its key markets, the decision to not lift prices in FY 2019, and the reconfiguration of its development projects.

Management explained that volumes in its Building & Demolition (B&D) collections business were above the previous corresponding period during the first half but have not grown as much as initially forecast. Furthermore, competition in the B&D collections market has put downward pressure on pricing, impacting the company’s margins.

In respect to price increases, management has decided to delay its price increases following the introduction of the Queensland waste levy in order to ensure its customers received only one price increase during the year. It will not implement a price increase until FY 2020 and will absorb the increased costs for the whole of FY 2019.

BINGO’s managing director and chief executive officer, Daniel Tartak, admitted that this was disappointing, but remains positive on the company’s outlook.

He said: “While we have seen headwinds in some of our key markets in FY19 we expect the construction market to remain strong, with overall volumes of construction activity in NSW and Victoria of over $130 billion.”

Before adding: “FY20 will be a transformational year for BINGO as we achieve several key milestones in our redevelopment program, including the commencement of operations at our new recycling and landfill asset, Patons Lane.”

Should you buy the dip?

Whilst this update was hugely disappointing, I think the selloff has been an overreaction and potentially created a buying opportunity today.

However, a lot of this rests on whether the ACCC approves its acquisition of Dial a Dump Industries. I believe this acquisition will position the company well for long-term growth, so investors may want to hold out until this decision is made on February 28.

Until then, fellow waste management company Cleanaway Waste Management Ltd (ASX: CWY) just delivered an impressive first half result and could be worth a look.

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Motley Fool contributor James Mickleboro 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 Scott Phillips.

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