Blueprint 2030 Will Increase Productivity And Operational Efficiencies

Key Takeaways

• The Blueprint 2030 strategy is driving operational excellence, improving margins, and supporting earnings growth through increased efficiency and productivity.
  
• Strategic infrastructure projects and technology investments are set to enhance earnings, with restored operations and labor productivity boosting revenue growth.
  
• Operational safety concerns, rising finance costs, regional competition, and project execution issues pose risks to Cleanaway's profitability and revenue growth.

Catalysts

Provides waste management, industrial, and environmental services in Australia.

• Cleanaway's Blueprint 2030 strategy has been gaining momentum, with operational excellence initiatives focusing on productivity and efficiency. This is expected to improve net margins as costs are reduced and operational efficiencies increase.
  
• The company's strategic infrastructure projects are on track to deliver $50 million of EBIT by FY '26, providing a clear runway for earnings growth. This will positively impact future earnings.
  
• Cleanaway's ability to restore business operations in Queensland and transform its Health Services segment means that both areas are now contributing to profitability, which should support revenue growth and net margins.
  
• Labor productivity improvements, due to reduced vacancies and turnover, are expected to translate to stronger financial performance through better utilization of resources, impacting earnings positively.
  
• Ongoing investments in technology and operational initiatives like CustomerConnect are anticipated to drive future revenue growth and improve net margins by enhancing customer service and internal efficiencies.

Cleanaway Waste Management Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cleanaway Waste Management's revenue will grow by 5.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.2% today to 6.4% in 3 years time.
• Analysts expect earnings to reach A$284.3 million (and earnings per share of A$0.13) by about February 2028, up from A$156.6 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as A$236.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.7x on those 2028 earnings, down from 37.9x today. This future PE is greater than the current PE for the AU Commercial Services industry at 23.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.97%, as per the Simply Wall St company report.

Cleanaway Waste Management Future Earnings Per Share Growth

Risks

• The tragic accident mentioned in the text highlights potential safety concerns within Cleanaway's operations, which could lead to increased regulatory scrutiny and legal costs, potentially impacting earnings.
  
• The rising net finance costs due to higher interest rates and debt could pressure Cleanaway's net margins and reduce profitability.
  
• Intense competition in certain regions, especially Victoria, is affecting landfill profitability, which might limit revenue growth and pressure EBIT margins.
  
• The business faces challenges in landfill volumes and costs, notably with FOGO diversion and soil costs, which could impact overall revenue and EBIT from this segment.
  
• Any delays or issues in the project's execution, such as with the Western Sydney MRF, could lead to increased costs or reduced expected earnings, affecting Cleanaway's financial performance.

Valuation

• The analysts have a consensus price target of A$3.086 for Cleanaway Waste Management based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$3.4, and the most bearish reporting a price target of just A$2.3.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$4.4 billion, earnings will come to A$284.3 million, and it would be trading on a PE ratio of 29.7x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of A$2.66, the analyst price target of A$3.09 is 13.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.