So far, the family has racked up an impressive track record. After buying a four-truck waste management business in 2005 for less than $1 million, the company now has a market capitalization of nearly $1.3 billion. The family also withdrew money from its IPO.
So what are investors worried about? Part of that is the stench that accompanies the waste management industry, an industry that has been exposed for illegal dumping, a lax regulatory environment and more. Within the industry, it is widely accepted that disputes with the environmental regulator are seen as a cost of doing business.
But what works for smaller operators doesn’t always work for larger publicly traded operators, and investors are keen that Bingo – which expresses a desire to professionalize the sector – keeps it clean.
There are also a number of people trying to outsmart Bingo numbers, many of whom wish to see their short positions pay off.
One of the most interesting arguments is that Bingo is increasing revenue due to the trade-off between a potential violation of the law and a fine against churning volume, a tactic that has also been employed by the telecommunications industry in 1990s when carriers found a cheaper way to deal with complaints was to simply refer them to the telecommunications industry ombudsman.
Under EPA regulations, Bingo is required to disclose its volumes monthly.
Bingo is currently embroiled in two legal proceedings against the NSW EPA over two of its facilities in Minto and Mortdale allegedly accepting higher volumes than permitted. The company warned in its 2018 presentation that if fines were imposed, they could impact profits, expenses and profitability. He disputes the allegations.
But there is another way to look at this. How much has the company generated in additional revenue by allegedly breaking the law?
It is alleged that Minto, for example, had a capacity of 30,000 tons when Bingo was caught taking 160,000 tons. The additional 130,000 tonnes, based on analysts’ estimates of Bingo’s average entry fee of around $170/tonne, equates to around $22 million and around $6 million in EBITDA. This compares to a pro forma EBITDA of $93.7 million for fiscal year 2018. It is possible that the number is much lower, given that the average entry fee does not take into account the different types of waste, including cleaner waste that is cheaper.
But the main question the allegations raise for investors is whether their income is sustainable and based on regulatory compliance. Another question is whether the board has appropriate monitoring operations in place when a volume limit can be exceeded five times.
This all happened before the group listed in 2016-17, and the chart is now maintained regularly on volumes at each site.
The regulatory world has also changed since ABC was founded. Four corners exposed some of the common practices in the industry: data is provided to the EPA monthly, and sources said the regulatory environment was slowly changing, suggesting that the EPA may now be trying to extract monetary benefits from overfilling, rather than the less punitive fines scheme. A changed regulatory environment may also clean up smaller operators, raising barriers to entry – at the moment anyone with up to 6000 tonnes does not need a license and this part of the market would be lightly regulated.
A separate set of numbers that skeptics want to decipher is how well Bingo generates organic revenue.
Bingo has been outspoken about its acquisition plans – it wants to expand along the east coast, shore up an area that benefits from waste generation that’s increasing population growth six times and develop other parts of its activity.
But like many roll-ups, the pace of acquisition obscures the underlying numbers and makes it difficult for investors to understand how the company is actually moving.
A controversial Ownership Matters memo circulated among fund managers in November separated the numbers, estimating that Bingo’s organic growth in 2018 was around 9.5%, well below the 18% implicated in a drop in earnings from Bingo. This estimate was made by removing all contributions to revenue from acquisitions since listing.
In 2017, Bingo revealed that companies acquired during the year generated $6.72 million in revenue, with acquisitions in October, November, March and May. Analysts worked on the basis that Bingo’s annual revenue, assuming no growth or decline or acquisitions, was $247.9 million at the end of 2017. Given that reported revenue for 2017 was $208.8 million, Ownership Matters estimated 2018 acquisitions added $45,866,000 to revenue.
Add that to 2017 base revenue of $247.9 million, then revenue without organic growth was $293.7 million. Bingo recorded group revenues of $303.8 million in 2018, implying organic growth of approximately $10 million or 3.4%.
Late last week, Bingo responded to the report by releasing its own three-page memo and defending its definition of organic growth. He also provided more details about his calculations, which some have been asking for since the company’s listing. Indeed, he argues that greenfield acquisitions — in other words, sites where approval and development have not been completed and capital has been deployed — should be classified as organic growth.
In the background, there are still rumors about the various related party transactions with the Tartak family, which always makes the market nervous, especially regarding land sales and rental transactions. But supporters say this was all clearly outlined in the prospectus – and in fact gave Bingo a clear advantage by making any transaction conditional on development approval – and is set to end in 2019, as stated in the same document. .
The reality is that all of these transactions will be eclipsed by the Dial A Dump transaction, although it is unclear what concessions, if any, Bingo will have to make to satisfy the regulator. Additionally, as Queensland’s waste tax of $75 per tonne is introduced in July, Bingo will come under additional pressure to meet its forecast, it will benefit from higher prices than it expects the dues tax. Queensland triggers in the NSW market.
And it’s on those two fronts – and perhaps convincing the market that Bingo earnings aren’t hostage to build cycles – that Daniel Tartak and the team will really be forced to deliver if he really wants to get rid of the shorts.