The Biffa (LSE:BIFF) share price took a tumble this week after the UK waste management company released its half-year results. The stock fell as low as 15% yesterday morning. However, it’s worth noting that it’s still up by more than 50% despite this recent decline.
So what was in this report that has investors spooked? And should I see this as a buying opportunity for my portfolio?
Encouraging results versus the Biffa share price
As a quick reminder, Biffa provides a range of services including, the collection and disposal of household and business waste. Moreover, the firm also provides recycling services to businesses and a suite of management tools to book collections, pay invoices, as well as maintain compliance with environmental legislation.
Despite yesterday’s negative response, the report actually showed some promising signs of recovery. Over the last six months, revenue came in 39% higher than a year ago and 14% higher than in 2019.
With lockdown restrictions largely out of the picture, the need for its business-facing services is back on the rise, resulting in elevated income. Consequently, management has restored profitability back to pre-pandemic levels. Adjusted operating profits came in at £45.4m, a 368% jump compared to a year ago. But it’s still slightly under the £45.7m achieved in 2019.
Needless to say, this is quite encouraging. At least, I think so. And it appears management would agree since it just announced a 2.2p dividend being paid out on 17 December. But if the results were positive, then why did the Biffa share price fall on this report?
Some problems begin to emerge
While the pandemic may no longer be as disruptive to everyday life, it’s still causing chaos for supply chains. Like many other businesses, Biffa is facing quite a few challenges with shortages in vehicles, fuel & waste containers, and HGV drivers. As a result, several bin collection services had to be suspended on multiple occasions, which impeded the group’s recovery progress.
Management has addressed the situation and is already providing additional incentives, such as higher pay to attract new driver applications. However, this will undoubtedly place extra pressure on margins, which are already being affected by price inflation. The company intends to pass on the rise in costs to its customers. However, whether it has sufficient pricing power to do so remains to be seen.
With that in mind, I can understand why some investors are choosing to close their positions, causing the Biffa share price to fall in the process.
The bottom line
The looming risks of operational disruption certainly cannot be ignored. However, despite these challenges, the firm has continued delivering growth and value, from what I can tell. So, personally, I think investors may have overreacted in this case.
Therefore I see the fall in the Biffa share price as a buying opportunity for my portfolio.
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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