Morgans upgrades Cleanaway after lower expense guidance
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The news: Stockbroker Morgans has upgraded its rating on Cleanaway after the waste management company reaffirmed its earnings guidance but lowered cost estimates for FY24.
The numbers: Morgans lifted its 12 month target price on the stock by 48 cents to $3.02 a share, and upgraded its rating to ‘add’ from ‘hold’.
Earlier this month, Cleanaway reaffirmed FY24 underlying EBIT guidance at $350 million, but reduced its depreciation and amortisation expense guidance range to between $360 million and $370 million, from $370 million to $390 million.
Cleanaway shares were trading 1.1% lower at $2.77 in a weak Australian market.
The context: Morgans analysts pointed to the company's targeted $50 million a year reduction in maintenance capex from FY25 which they said would have a greater impact on cashflows and valuation than short term earnings guidance changes.
They said this is meaningful in the context of $280 million to $300 million maintenance capex budget for FY24, which was expected to grow in subsequent years, and the additional free cash flow would help to deleverage the balance sheet.
The source: Morgans research
