Despite being down 21.1% in the March quarter, some of the companies within the Deloitte Australian CleanTech Index – which comprises 92 ASX cleantech shares across 5 sub-sectors – now look primed to rebound from the pandemic-induced disruption.
Here are 3 ASX cleantech large-cap shares that have been regaining lost ground since the share market sell-off in late February.
Reece Ltd (ASX: REH)
The share price of this plumbing and bathroom product supplier across Australia, NZ and the US dropped from a high of $11.90 on 21 February to a 23 March low of $7.87. The Reece share price has since bounced back up to $9.10.
Given the fundamentals on this stock have not changed, I believe it's well placed to benefit from both measures to reignite the Australian economy, including the federal government's $688 million HomeBuilder/renovation scheme, and future growth in its recently acquired US plumbing distribution business, Morsco Inc.
As a vote of confidence in the stock, Reece recently tapped the market in a $600 million capital raise, plus an attractively priced retail entitlement offer, which will increase liquidity, reduce net debt and help capitalise on new opportunities, which may include further acquisitions in the US. The company indicated the measures would increase its total liquidity position to $917 million.
While it's unlikely, the $917 million Reece now has available could be drawn on if future outbreaks of coronavirus forces shutdowns of its Australian and US outlets, which (unlike NZ) have managed to stay open given their classification as essential services. These funds also position Reece to ride out any entrenched downturn locally, or if the US downturn ends up being a more protracted affair.
I think the stock's clear market dominance remains a major plus going forward, with future upside coming from further expansion into the US, and ongoing technology investment. The stock trades on a forward price-to-earnings (P/E) ratio of 25x. In my opinion, a share price sub-$9.25 makes for a reasonable entry point for long-term investors.
Cleanaway Waste Management Ltd (ASX: CWY)
As a provider of waste management services, Cleanaway has performed well throughout the coronavirus crisis. Due to Cleanaway's defensive core earnings stream, the share price (which is currently 13% down on its 52-week high of $2.53) managed to avoid the brunt of the sell-off experienced by the market at large.
With municipal waste management representing up to 55% of total earnings before interest, tax, depreciation and amortisation (EBITDA), Cleanaway looks well placed to handle its debt position, in my view. I think the stock looks equally well placed to capitalise on Australia's desire to become increasingly waste self-sufficient.
With its Footprint 2025 strategy seeing the company investing in a sustainable value chain, Cleanaway also appears to be well positioned to make further forays into recycling and alternative waste processing. I think this will help to consolidate the company's market dominance and this bodes well for improved margin growth. In my opinion, a share price of under $2.00 would make for a buying opportunity.
Bingo Industries Ltd (ASX: BIN)
Like Cleanaway, Bingo's strong fundamentals in recycling and waste management solutions positioned it well to ride out the worst of the COVID-19 downturn and emerge remarkably unscathed. Bingo shares were heavily sold-off along with the broader market, going from a high of $3.20 on 19 February to a low of $1.82 virtually a month later. However, it has since bounced to $2.19, which puts it on a 10% discount to Morningstar's fair value of $2.45.
I'm particularly impressed by Bingo's financial performance in Q3 FY20, which (unlike so many shares) is on track to deliver its stated market guidance, pre-COVID-19. Bingo's cash preservation focus and strong balance sheet means it's well positioned to capitalise on the closure of any of its smaller unlisted competitors, which may have limited access to the capital needed to successfully weather the pandemic.
In addition, the recent approval to increase its total landfill limit from 700,000 tonnes to 1 million tonnes annually allows it to increase its operating hours, which signals a major revenue opportunity for Bingo going forward.
