How things are shaping up for these two support service stocks: Aggreko PLC & Biffa PLC

After the weak cues on the UK’s GDP data and rise in fears of the second wave of the pandemic, the British indices tumbled on Friday, 15th June 2020 (before the market close). The FTSE-100 and FTSE-250 plunged around 1.46 per cent and 1.06 per cent, respectively. Some of the trigeering events to put some light on it:

  • As social distancing measures are in place, non-essential shops are set to reopen today.
  • IMF forecasts deep uncertainty over global economic recovery in its recent statement.
  • As per the recent report of Office for National Statistics, the manufacturing activity plunged by 24.3 per cent; the production output fell by 20.3 per cent, the mining and quarrying, electricity & gas and water & waste dropped by 12.2 per cent, 9.5 per cent and 5.3 per cent, respectively in April 2020.
  • The services output fell by 19 per cent in April 2020. The Accommodation and foodservice sector nose-dived 88.10 per cent in April 2020.

In this article, we will discuss two industrial stocks - Aggreko PLC (LON: AGK) and Biffa PLC (LON: BIFF). As on 15th June 2020 (before the market closed at 2.45 PM GMT+1), (LON: AGK) inched up 1.23 per cent, whereas (LON: BIFF) surged by 0.59 per cent.

Aggreko PLC (LON: AGK) – Company refrain from paying a final dividend to preserve the Company’s liquidity position

Aggreko PLC is a FTSE 250 listed company. The Company provides mobile power and temperature control systems. The Company’s primary line of business includes rental solutions, power solutions industrial and power solutions utility. Aggreko has a global reach in 79 countries.

Financial and operational update – FY19 as reported on 3rd March 2020

  • Aggreko PLC generated revenue of GBP 1,613 million after the translational impact of currency in FY19, of which rental solutions contributed 53 per cent of the total revenue, power solutions industrial(PSI) and power solutions utility (PSU) added 27 per cent and 20 per cent, respectively.
  • The operating profit for the Company stood at GBP 241 million.
  • Rental solutions generated revenue of GBP 833 million of which petrochemical & refining, building services & construction and oil & gas were the key sectors to contribute. The revenue was up by 1 per cent compared to the same period last year. Rental solutions provide power, heating and cooling services in the developed market.
  • Power solution provides service to customers in the emerging markets. PSI and PSU generated revenue of GBP 434 million and GBP 319 million (excludes pass-through fuel), respectively.
  • The Company considers ROCE to be a vital measure of business performance. After excluding pass-through fuel and currency group generated of ROCE of 11.2 per cent for FY19.
  • At the end of FY19, the Group’s average power on hire was 6,381 MW.

Group’s Financial Performance & Business Unit Performance – FY19 as reported on 3rd March 2020

(Source: Company Website)

Headroom for balance sheet strength

  • At the end of December 2019, the Company had a net debt of GBP 584 million.
  • 23rd March 2020, as per Covid-19 update given by the Company, at the end of February 2020, the Company had cash of GBP 66 million, undrawn committed facility of GBP 458 million and an undrawn uncommitted facility of GBP 82 million.
  • Aggreko has refinanced all its debt maturing in 2020.
  • The Company is on the lookout for assistance from the Bank of England under its Covid Corporate Financing Facility Scheme (CCFF).

Recent event update

  • 23rd April 2020, the board decided not to pay a final dividend for FY19, the Company paid an interim dividend of GBP 0.0938 on 1st October 2019 for FY19. The Company paid a dividend of GBP 0.2712 in FY18, and dividend payout has been regular since 1998.
  • As per the Company’s press release on 24th March 2020, Tokoyo 2020 Olympic and Paralympic games have been postponed to no later than summer of 2021. The Company is supporting Tokoyo Olympics and has entered into a work contract of USD 200 million, in an announcement on 3rd March Company stated that the scope of work had been increased to around USD 250 million.

Tokyo Olympics contract value

(Source: Company Website) * includes revenue earned in 2019

Share Price Performance Analysis

(Source: Refinitiv, Thomson Reuters) -1-Year Chart as of June 15th, 2020, before the market close

The Aggreko PLC’s shares were trading at GBX 475.20 on 15th June 2020 (before the market close at 2.06 PM GMT+1). The stock had its 52 weeks High and Low of GBX 881.00 and GBX 285.90 per share. The total outstanding market capitalization stood at around GBP 1.21 billion.

Business Outlook

As per the FY19 annual report, the Company guided capital expenditure for the fleet of around GBP 200-250 million for FY20.

Biffa PLC (LON: BIFF) – Raised fresh equity of around GBP 100 million amid the pandemic

Biffa PLC is a FTSE 250 Company based in the UK. The Company is the leading waste management company and divides its business into two categories Collections and Resources & Energy.

Fresh capital raised – as reported on the 12th June 2020

  • Biffa PLC issued 49,999,999 new ordinary shares and raised around GBP 100 million.
  • The new shares were placed at a 5 per cent discount to the closing price of GBX 210.50.
  • The new shares issued constitutes 19.99 per cent of the total outstanding shares of the Company.
  • Members of the Company’s board and the management team subscribed for 140,000 new shares.
  • Avenue Capital Group, a significant stakeholder in the Company, agreed to subscribe 4,000,000 shares out of the total new issued stock. The transaction will be worth close to GBP 8 million.
  • The new capital will be used to increase balance sheet strength.

Financial and operational performance – FY2020 Period

  • Resources & energy division revenue was GBP 232 million. Recycling, organics, inerts and energy from waste contributed GBP 80 million, GBP 57 million, GBP 52 million and GBP 43 million, respectively.
  • At the end of March 2020, the Company had a net debt of GBP 425.5 million.
  • At 27th March 2020, the Group had unutilized bank facilities of GBP 98.0 million and a net cash balance of GBP 87.8 million.

Business Division Performance – FY20 as reported in the annual report on 5th June 2020

(Source: Company Website)

Progress and impact of Covid-19 on the Company’s business

  • The Group revenue was down by approximately 30 per cent during the lockdown as compared to the pre-lockdown level.
  • I&C and landfill businesses were the most impacted, with a 50 per cent decline in revenue when compared to the pre-lockdown level mainly due to the decreased industrial activity. Municipal services remained unaffected during the lockdown.
  • As per Biffa’s recent annual report presentation, GBP 50 million of the deal is on hold in the collection’s division.
  • Phase 2 of the plastic bottle recycling facility in Seaham is on track. The new facility will process different type of plastic used in milk bottles. Phase 1 of the plant is fully operational.
  • In the wake of the pandemic, the Company refrained from paying the final dividend; however, it paid an interim dividend of 2.47 pence per share for FY20.

Share Price Performance Analysis

(Source: Refinitiv, Thomson Reuters) -1-Year Chart as of June 15th, 2020, before the market close

The Biffa PLC’s shares were trading at GBX 204.50 on 15th June 2020 (before the market close at 2.10 PM GMT+1). The stock had its 52 weeks High and Low of GBX 314.00 and GBX 165.40 per share. The total outstanding market capitalization stood at around GBP 512.50 million.

Business Outlook

The Company sees an opportunity to do distressed deals post-pandemic. It believes it can progress the small deals by itself, but large transactions will require bank support. Biffa has an organic and inorganic growth strategy and continues to commit capital for acquisition in the Collections business.