Over the next fortnight, the UK will create around 30 per cent more waste than usual, including six million Christmas trees and 225,000 miles of wrapping paper.
For merry-makers, the festive season is fun, tiring, indulgent and, at times, excessive. For retailers, it is invariably the most important period in the year. And for Biffa, it is exceptionally busy.
Biffa picks up refuse from 2.4million households and 72,000 businesses, including major chains such as John Lewis and Sainsbury’s. The company is heavily involved in waste processing too, recycling paper, plastic and metal, and creating energy from food and landfill gas.
Driving ahead: Biffa is set for a 30 per cent seasonal surge in business
Biffa shares are 244½p and should increase over the next few years. The company is growing, dividends are decent and chief executive Ian Wakelin is determined to make the business bigger, better and more profitable.
It was founded in 1912 by Richard Biffa. Initially, a London-based haulage company, it has spent most of the past 115 years in waste. More recently, it was part of water group Severn Trent and then spent a decade under private equity and investment fund ownership.
The company floated in September 2016 at 180p a share, although its then owners had hoped for a price between 220p and 270p. Difficult market conditions put paid to that ambition but Biffa has performed well over the past 15 months, proving the sceptics wrong. The best should be yet to come however.
As the largest collector of Britain’s rubbish, Biffa is in an interesting position. Not long ago, most of the UK’s waste went straight to landfill, where it was simply left to rot. Today, around 45 per cent of household waste and more than 50 per cent of commercial waste is recycled.
The trend is not just good for the environment, it also turns rubbish from a liability to an asset.
At last month’s interim results, for example, Biffa delivered underlying profit of £43million for the six months to September 30. Within that figure, £24.7million came from commercial waste collection, a meagre £4.4million came from household collections and £23.6million from processing recycled waste and turning rubbish into energy.
Biffa operates two large recycling facilities, capable of processing 400,000 tons a year, equivalent to the recycling generated by more than a million households. These facilities turn unwanted packaging into commodities that can be sold for a handsome sum.
Significant quantities are shipped to China, the largest purchaser of recycled material in the world, which it converts to items such as cardboard boxes or metal fixings. China recently insisted that recyclers improve the quality of shipments so Biffa has reconfigured its plants to ensure they comply.
Biffa picks up refuse from 2.4m households and 72,000 businesses, including major chains such as John Lewis
The company also runs a plant that turns used plastic milk containers into new bottles. Highly successful, it makes 15 per cent of all the plastic milk bottles sold in the UK.
Biffa also owns anaerobic digesters to convert food waste into electricity that is sold to the National Grid and it captures methane gas from landfill sites, which is turned into energy too.
Wakelin is keen to increase revenue and profit from recycling and energy. The group has formed a partnership with Covanta, an American company and one of the largest waste-to-energy businesses in the world.
The pair have planning permission for two huge sites in Leicestershire and Cheshire, which would incinerate refuse to create electricity. Similar sites exist in the UK but there are not enough of them so tons of waste that could be converted to energy is sent to landfill instead.
The new sites would cost around £500million to build so both Biffa and Covanta need to ensure the project makes commercial sense first. Analysis is ongoing and a decision will be made next year. In the meantime, other developments are underway, such as a plant that collects and recycles waste from street sweepers.
Biffa is also expanding both organically and through acquisitions, while Wakelin is determined to make the group more efficient through greater use of digital technology. Biffa takes 8000 calls a day from customers, for instance, many of which involve orders or payments that could be made online.
Wakelin is also fitting trucks with telematics boxes to make sure drivers take the right routes and do not take unscheduled rests on the job. Brokers expect profits to increase by 31 per cent to £59million for the year to March 2018, rising to £65million the year after.
A dividend of 7p is pencilled in for the current year, moving up to 7.3p in 2019.
Midas verdict: Size matters in the waste trade, as regulations become more onerous and processing more complex. Biffa is well positioned and should make significant progress. At 244½p, the shares are a buy.