Biffa (LSE:BIFF) announced its half-year results last week and the share price has fallen since the announcement. So should I buy shares for my portfolio or avoid them?
The Biffa share price falls
Biffa is one of the UK’s leading waste management firms. It specialises in the collection, surplus redistribution, recycling, treatment, disposal, and energy generation of waste. It employs over 9,000 people, has close to 3,000 collection vehicles, and covers over 95% of UK postcodes.
As I write, Biffa shares are trading for 360p. A year ago, shares were trading for 229p, which gives an impressive 57% return over 12 months. The Biffa share price is actually down 7% since last week’s half-year results were announced. Shares were trading at all-time highs since it joined the London Stock Exchange in 2016, before the results prompted a drop in share price.
So why have Biffa shares fallen and what was in the results that has prompted the dip?
Half-year results spooks investors
Biffa’s half-year results covered the 26 weeks ended 24 September 2021. The results were actually impressive, which leads me to believe there are other factors at play that have spooked investors, but more on that later.
It must be noted that the pandemic affected Biffa’s performance so this period was key to understanding recovery prospects. Biffa reported revenue increased 39% compared to 2020 and 14% compared to the same period in 2019, which is encouraging. Cash performance was better than expected and full-year expectations are still in line with forecasts. The strong performance resulted in a 2.2p dividend being declared which is a bonus in my eyes.
I believe the Biffa share price falling is a direct result of the operational issues it is facing in the short and medium term and not recent performance. There are well documented macroeconomic issues that could affect Biffa’s operations and post-pandemic recovery. Firstly, the supply chain crisis is affecting it in a few ways. There is a shortage of vehicles, fuel, and waste containers. The well documented shortage of labour in the form of HGV drivers could also be an issue. This shortage of drivers has impacted collection services. Finally, rising inflation, is driving up costs for Biffa, and will have to be passed on to its customers eventually.
My verdict
The issues noted above have hampered Biffa’s investment viability for many, causing the share price to drop. I can understand the position but overall I feel it is an overreaction.
I believe the Biffa share price could be an opportunity for my portfolio at current levels and I would buy. It is an established business with a large presence backed up by over 100 years of history and tradition. It has a good track record of performance too. I understand that past performance is not a guarantee of the future but revenue and profit increased year on year for three years before the pandemic struck. Biffa also pays a dividend which would make me a passive income. I think now could be an opportunity to buy shares for my portfolio.