Cleanaway share price halted amid results, $400m cap raise and acquisition

Let's analyse all the major news that has come out today.

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Key points

  • Cleanaway is raising $400m to fund the takeover of GRL and its growth strategy 
  • The group posted an 18% increase in revenue to $2.6b but its statutory net profit fell 45% to $80.6m due to one-off costs 
  • Cleanaway is forecasting FY23 EBITDA of $630-670m, but that does not include the contribution from GRL 

The Cleanaway Waste Management Ltd (ASX: CWY) share price won't be trading this morning as it undertakes a $400 million capital raise. It has also announced an acquisition.

If that wasn't enough to keep investors busy, the waste management group also released its full-year results at the same time.

But you won't be able to use the Cleanaway share price as a barometer for its earnings news. The shares are unlikely to start trading until Monday.

Cleanaway share price undergoes a capital raise

This is to give the company time to pass the cap around. It's looking to do a $350 million fully underwritten institutional placement. It will also undertake a $50 million non-underwritten share purchase plan for existing shareholders.

The offer price for the placement is set to $2.50 a pop. This represents a 7.7% discount to the last closing price for Cleanaway shares yesterday.

The price under the SPP will be the same as the placement or at the five-day VWAP – whichever is lower.

How Cleanaway will use the proceeds from the capital raise

Proceeds from the raise will be used to fund Cleanaway's growth strategy and to pay for the takeover of Global Renewables Holdings Pty Ltd (GRL). Cleanaway is buying the business for $168.5 million.

The acquisition price represents 7.9 times the enterprise value of the target's actual FY22 (FY22A) pro forma EBITDA.

Cleanaway believes it's paying an attractive price, particularly as it regards itself as the natural owner of GRL.

What the acquisition means to Cleanaway

GRL is a licensed composting facility that processes ~20% of Sydney's 'Red bin' household waste at its strategically located Eastern Creek site. It delivers ~30% landfill diversion and better carbon outcomes compared to landfill.

The bidder estimates that the deal will be 3.7% EPS accretive on a pro forma FY22A basis. It also believes there is incremental earnings upside as additional capital is deployed into growth projects targeting a double-digit return.

Stronger sales but lower profits

Meanwhile, management handed in its earnings report card that showed an 18.4% increase in net revenue to $2.6 billion.

But its underlying earnings fell due to costs linked to its acquisition and integration of the Sydney Resource Network (SRN).

Summary of Cleanaway's FY22 results  

  • Net revenue increased 18.4% to $2,603.8 million
  • Underlying Earnings before Interest and Tax fell 0.6% to $257.1 million
  • Cash flow from operating activities increased 9.9% to $466.3 million
  • Total dividend per share increased 6.5% to 4.9 cents
  • Statutory net profit fell 45.4% to $80.6 million

The big drop in the statutory profit is not only related to SRN but also the New Chum landfill rectification post floods, leadership transition and equipment loss in the Health Services business.

Management commentary

The managing director of Cleanaway, Mark Schuber, commented:

In a year of significant challenges posed by a global pandemic, natural disasters, supply chain disruptions and emerging inflation, Cleanaway delivered a strong financial performance.

While Cleanaway is not immune to inflationary pressures, we do have mechanisms within many of our contracts that allow us to recoup rising costs over time, but there is a time lag on our ability to recover these amounts, which has resulted in a temporary impact on margins.

Outlook

Cleanaway is expecting to deliver stronger earnings in FY23 compared to the last financial year. This is due largely to the full-year contribution of SRN, underlying growth and returns from its growth initiatives.

It expects underlying EBITDA to range between $630 million and $670 million for this year. So far, it believes it is on track to deliver a result at the mid-point of this range.

The guidance excludes the ~$21 million in annualised EBITDA contribution from the GRL acquisition. Management isn't willing to bank that in just yet as material factors, like volumes into post collections assets and labour availability, can affect the outcome.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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