Berenberg downgraded Biffa to ‘hold’ from ‘buy’ on Thursday and cut the price target to 415p from 465p as it updated its forecasts ahead of the latest ‘put up or shut up’ (PUSU) bid deadline on 30 August, and following the recent full-year results.
“With a potential bid from Energy Capital Partners (ECP) to come at 445p, versus a break price that we consider to be below the current level, we downgrade our rating to hold, while considering that a 445p offer (implying circa 10% upside) remains the most likely outcome from here,” it said.
The waste management company announced in June that it had received a “series of unsolicited and indicative proposals from affiliates of ECP”, with a proposal of a 445p offer price that the board would be minded to recommend, should the offer be made.
At that point, the offer was subject to due diligence. Since then, the PUSU deadline has been extended twice.
“However, the reason for this extension was stated as because ‘discussions between ECP and potential financial providers are still ongoing’, implying that due diligence is now complete, and the only barrier to a bid is ECP’s completion of debt financing for the deal,” Berenberg said.
“Given Biffa’s majority non-cyclical earnings streams, the relatively low cost of Biffa’s long-term private placement debt facilities (2.5-2.7%) and the size of recent deals that ECP has completed (c£1.4bn on two takeovers in 2022), we expect that deal financing is a formality that will conclude relatively soon.”
As far the FY results are concerned, Berenberg said they were in line with expectations, showing a strong recovery from the pandemic.