That Bingo Industries (ASX: BIN) is up more than 85% in four months is testament to its desirability as a long-term investment.
It has also been extremely rewarding for some members of the founding Tartak family who, it is reported, collected $420 million in cash when the company floated in 2017.
But the recovery belies the inevitable cyclicality in the business for domestic and industrial waste collection, recycling and disposal.
Earlier in the year, Bingo shares fell 50% in a single day, after the company announced it would fail to generate the previously expected earnings growth of 15-20%.
Instead, the company said it expected to produce a 2019 profit equal to 2018.
The company made its announcements at a time when residential construction activity was flattening but still at peak levels.
Since then however residential approvals have slumped and anecdotal evidence points to a major decline in the pipeline of work for both house and land package developers and developers of medium- and high-density dwellings.
Perhaps even more importantly, the commercial construction industry is booming. However, the demolition phase – the most lucrative for a waste removal business – appears to have peaked.
With many unlisted builders privately telling us that both residential and commercial construction is ‘post peak’, Bingo’s ability to match last year’s earnings will be challenging despite some analysts putting in extremely bullish FY20 forecasts as a consequence of the Queensland landfill levy.
It is not unreasonable to expect the company to provide guidance for 2020 that might be weaker than 2019.
If a downgrade transpires, and if the share price reacts negatively again, we think Bingo could be a very hot stock indeed.
Through the company’s acquisition of Dial-a-Dump Bingo now owns one of the largest non-putrescible landfills in the southern hemisphere and, provided the competitive landscape allows the company’s gate fees to cover not only operating costs and depreciation costs but also a profit after taking into account post-closure management and perhaps the replacement of the landfill asset itself, Bingo could be extremely lucrative.