Making money from junk, should you buy into the Biffa float?

Biffa (LSE:BIFF), the waste company that has become something of a household name over the past few decades, is set to make a return to the London market this week. 

Initial trading in the company’s shares will begin on Thursday with full public trading slated to start at the beginning of next week. The company is issuing 118m new shares to the public at 180p apiece and is expecting to raise £262m from the offering. Management has stated that the funds from the offering will be used to pay down debt and pay expenses related to a tax claim from HMRC. 

A brand with heritage 

Biffa is one of the most recognisable names in the UK. The company’s large branded bins can be found on almost every street, and the group has been collecting the UK’s waste for more than 100 years.  The business is also highly defensive as waste collection is a relatively specialised industry — it’s becoming even more so with the introduction of new environmental regulations — where the largest players can grab the biggest market share. 

However, this isn’t the first time Biffa has launched itself onto the public markets. The company was forced into an emergency restructuring during 2012 after being bought  out by a group of private equity firms in 2008 in one of the last big buyouts as the financial crisis grew. Since 2012 the company has been rebuilding its finances and position in the market, preparing for a return to the stock market. 

Today Biffa has all the hallmarks of a successful business. The company is the second-largest waste management company in the UK, has an annual turnover of £927.5m and employs more than 7,000 people. Last year, Biffa reported underlying earnings of £122m. The group collects, processes and disposes of 6.6m tonnes of waste and recyclables for more than 95% of UK postcodes and 2.4m households every year. 

Destined for growth?

Biffa’s management believes that a combination of population growth and an increased regulatory burden for the waste industry will see the UK waste market grow 5% at year until 2020. Bolt-on acquisitions will help boost organic growth. Over the past three years, Biffa has made 20 acquisitions worth £53.4m, which includes a £13.5m deal to buy part of recycling management group Cory Environmental in June.

It’s an interesting company with a rich heritage that’s well positioned for growth. Nonetheless, as with all IPOs, Biffa’s comes with a degree of risk. The company has already cut its offering price from 220p to 180p, which implies that demand for the group’s shares may not be as robust as management would have liked.

With IPOs, it usually pays to wait and see how an offering goes and wait for City analysts to publish their thoughts on the company before taking a position. Biffa is no exception. So overall, it looks like a good investment, but it may not be sensible to buy into the company’s float.