Biffa PLC shares skid on half year earnings drop despite dividend hike

Shares in waste management firm () hit the skids in late-morning trading Wednesday after an interim dividend hike failed to distract from shrinking earnings and margins in the first half.

The group reported underlying (EBITDA) earnings for the period of £75.6mln, down 0.9% on the first half of last year despite net revenues climbing 4.2% to £501.8mln.

READ: Biffa eyes further acquisitions following solid first-half trading performance

Underlying operating profit margins were also under pressure, falling to 7.4% from 8.1% previously, while net debt in the first half climbed to £302.8mln from £272.2mln.

However, despite this, the interim dividend was increased to 2.3p per share from 2.17p last year.

Acquisitions help I&C arm avoid revenue shrinkage

Across its divisions, the firm saw revenues decline across its municipal, resource recovery & treatment, and energy segments by 4.6%, 0.9%, and 4.9% respectively.

The pressure on the municipal segment had previously been highlighted by the company in a trading update in September, when it said cost inflation and cuts to local government spending had made for a “challenging” environment.

The one exception was its industrial & commercial arm, which grew by 7.9% during the first half which was boosted by acquisitions including waste and recycling services provider Weir Waste Services which it purchased for £16.2mln in August.

READ: Biffa acquires Midlands waste and recycling firm Weir Waste Services

In other acquisition news, Biffa said it was continuing discussions with US-listed firm Covanta Energy (NYSE:CVA)  regarding the potential development of two energy recovery facilities in Cheshire and Leicestershire.

Investment in recycling

In its outlook, company chief executive Michael Topham announced that it had invested around £15mln in a PET plastic bottle recycling plant, which would take around 18 months to commission and build, adding that it remained “well placed” to capitalise on consolidation in the waste collection market as well as infrastructure development in recycling and energy from waste.

The company also said that despite “a number of expected external headwinds”, its expectations for the full year remained unchanged.

Price cut but acquisitions still make it a ‘Buy’, says broker

In a note to clients, analysts at City broker Peel Hut cut their target price for the firm to 277p from 296p, citing the “much lower margins” in the Municipal segment, which shrank to 2.5% compared to 6% two years ago.

However, the broker retained its ‘Buy’ rating on the stock, saying that while earnings momentum had “deteriorated” growth remained positive and “was likely to remain so given bolt-on opportunities and the recovery in recycling profit as contracts are…