The Biffa share price is rising: should I buy this growth stock now?

The Biffa share price has risen by 25% over the last year. Can this waste and recycling group keep growing as life returns to normal?

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The Biffa (LSE: BIFF) share price has risen 36% since I last wrote about this waste management and recycling group in 2019. At that time, I said I thought Biffa could be a good long-term buy. What’s my view now on this FTSE 250 growth stock now?

Biffa’s latest numbers suggest to me the company handled the impact of the pandemic well and is continuing to move forward. A recent deal to buy rival Viridor’s collection and recycling business will increase the company’s capabilities and should lead to lower costs and reduced transport emissions. Does this stock still interest me at today’s higher share price?

Profits should bounce back

Biffa’s collection volumes fell by up to 50% between April and June last year, as many businesses closed completely. Although the company saw a “solid recovery” over the remainder of the year, waste volumes for the full year were still down by 18% on 2019/20.

The pandemic also hit the recycling business, which saw volumes fall by around 20% on the previous year. Overall, Biffa’s revenue fell by 10% to £1,042m last year, while the group’s pre-tax profit dropped 60% to £29m.

That might not seem like good news, but events last year were unprecedented and are (hopefully) unlikely to be repeated. Biffa stayed profitable and City analysts expect the firm’s profits to return to pre-pandemic levels this year.

Customers want Biffa to get bigger

Biffa’s recent acquisition of Viridor’s ops will expand the company’s market share, especially in the south of England. It seems clear to me both Biffa’s customers and, potentially, its share price should benefit from deals of this kind.

One example is that more intense collection routes mean the company’s refuse lorries get filled quicker and spend less time driving between collections. This means lower costs and reduced emissions. It also makes it easier to deploy electric vehicles — Biffa already has the UK’s largest fleet of electric refuse lorries.

CEO Michael Topham also said the firm’s customers “want the certainty of a self-delivered model.” In other words, they want to know the company handling their waste will deliver the entire service in-house, including recycling.

This is important to ensure transparency and accountability. We’ve probably all seen the stories about plastic waste being exported from the UK and dumped, rather than recycled. Biffa’s end-to-end services protects customers from this kind of risk.

Biffa share price: still a buy?

When I last looked at Biffa shares, the stock was trading on just 11 times forecast earnings. Today, its rising share price values the business at around 18 times forecast earnings. The company’s debt levels are a little higher too, as a result of last year’s slump and continued acquisition activity.

Higher debt leverage carries some risk, but this situation looks manageable to me. I expect Biffa’s expanded business to grow into its valuation as the UK economy returns to normal, while debt levels should fall.

In my view, Biffa’s share price looks about right at around 300p. I don’t expect fireworks in 2021, but I expect steady growth in future years. I’d still be happy to buy Biffa for a long-term portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head 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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