Cost-outs drive profit growth at Cleanaway

EBITDA for Cleanaway Waste Management increased 22% and beat our forecast by 3%. Underlying revenue growth of +1.5% was 0.5% slower than forecast. A strong cost-out performance (albeit $9m from lower fuel costs) drove a 350bps increase in underlying EBITDA margin to 21.3%. Capex of $154m was less than forecast but explained by guidance of CapEx less than D&A. High-quality management is evident in the result. The key negative was the $11m decrease in the landfill remediation provision after $45m of remediation spend in FY16. We have made material upgrades to our forecasts, reflecting the 2H16 and reinforced by the outlook statement. Our group growth forecasts for FY17-19 are 3% pa underlying revenue, 5.7% pa EBITDA, 15% pa EBIT, and 19% pa EPS over FY17-19. We forecast double-digit DPS growth, albeit yield is not a key part of our forecast investment return. Get more detail on Cleanaway, including a changed analyst rating: (VIEW LINK)