We recently researched Cleanaway Waste Management (ASX:CWY) in The Dynamic Investor after the release of full-year results and to assess the implications of a potential takeover offer. While we believe there is a strong likelihood that a transaction will proceed, the key near-term drivers of the share price are likely to be related to the potential transaction rather than CWY’s underlying fundamentals.
However, given there is no certainty that a deal will proceed, we also assess whether CWY remains an attractive investment opportunity in the event a transaction does not materialise.
About Cleanaway Waste Management
Cleanaway Waste Management is an Australian-focused industrial, waste and environmental services company. Cleanaway operates in three segments: Solid Waste Services (SWS), Oils &Technical Services and Health Services (OTSHS), and Industrial Services. These three segments encompass ten strategic business units.
Solid Waste Services involves the collection, recovery, and disposal of solid waste. OTSHS’ activities include the collection, treatment, processing, refining, recycling and destruction of liquids, hydrocarbons, chemical waste, specialised packaged and hazardous waste. Industrial and Waste Services provides a wide variety of services to Infrastructure and Resources markets.
CWY’s revenue base is largely underpinned by long-term contracts across all sectors. The revenue base is also supported by a geographically diverse customer base of municipal councils, hospitals, infrastructure, resources, commercial & industrial customers.
Key Fundamental Drivers
Implications From Takeover Offer
On 13 August 2026, CWY announced that it had entered into a Transaction Process Deed with EQT Infrastructure of Sweden (EQT) to acquire 100% of CWY for $3.13 per share via a cash offer. The proposal equates to a 34% premium to the 6-month Volume-Weighted Average Price of $2.34 per share at the time of the offer.
Effectively, the cash offer is $3.13 per share less the cash amount of any dividends (including any potential special dividend). The proposed offer contemplates the potential for CWY to consider a fully-franked special dividend. Assuming a takeover is completed during 2H27, then CWY could pay ~14 cents per share in aggregate fully franked dividends, which would exhaust its franking account before completion of the takeover, dependent on the level of distributable retained earnings.
The CWY board intends to recommend the offer subject to no superior proposal and the offer price being “no less than $3.13 per share”. The exclusive due diligence period is due to expire in early October 2026.
Is the Underlying Business Performing Well?
For the 12 months to 30 June 2026 (FY26), CWY reported EBIT of $470m was at the midpoint of guidance issued in a trading update issued to the ASX on 14 April. EBIT was largely insulated from the Middle East conflict, with a net EBIT impact of only -$4m and ~80% direct fuel impacts recovered.
The FY26 period saw a strong contribution from Solid Waste Services (SWS) and Contract Resources. The EBIT margin for SWS improved by 40 basis points on the back of increased pricing, productivity, and improved labour and fleet efficiency.
The strong EBIT contribution from Contract Resources offset price headwinds in the OTSHS segment. For the latter, EBIT declined by -11%, reflecting slower Health recovery, lower project volumes, and facility disruption.
In terms of the outlook, the Company reaffirmed FY27 EBIT guidance of $500m-$530m that was provided prior to the FY26 results release. EBIT growth is expected from:
i. Solid Waste Services – Collections-led growth benefiting from centralised sales and fleet
ii. Environmental & Technical Solutions – OTS and Health recovery; Contract Resources to deliver strong growth with Middle East recovery expected.
The growth from these two avenues is expected to be partly offset by higher costs related to IT systems, technology upgrade costs and investment in the Blueprint 2030 strategic initiatives.
However, the expected EPS growth of +9% in FY27 falls short of the target set at the Investor Day in April where CWY said FY27 EPS growth would outperform its medium-term target of +10-15% per year. Further, the EPS growth profile over FY26-29 on a CAGR basis has also moderated.
Improved Free Cashflow Strengthens Balance Sheet Position
Following completion of the Contract Resources acquisition, gearing (on a Net Debt to EBITDA basis) increased to 2.27x as at 30 June 2026. This is largely consistent with Company’s prior guidance for ~2.4x. The current level of gearing is within both the target gearing range of 2.0-2.5x and below the covenant limit of <3.0x.
Free cashflow (FCF) increased 64% to $214m, supported by earnings growth, working capital management, and a ~$40m fleet payment timing benefit. There was a strong recovery in FCF in 2H26, after the 1H26 period saw a 21% decline in FCF.
Guidance provided by the Company implies continued strong FCF in FY27 (~$200-240m), supported by improved fleet payment terms and delivery timing that will reverse in FY27. The continued strong FCF position provides additional headroom on CWY’s balance sheet to seek future earnings growth opportunities or strategic assets. Of course, this is in the event that the EQT proposal does not proceed.
A key factor supporting future FCF is that the Company intends to reduce capital intensity (CAPEX-to-net revenue) over time by reducing project spend size, reducing growth CAPEX, and improving waste network’s efficiencies.
Fundamental View
While we consider CWY’s fundamentals have weakened, its share price performance in the near term will likely be driven predominantly by the probability of the proposed transaction proceeding. To this end, we note that a proposed deal is supported by Board approval, Further, the probability of a binding offer increases as the remaining time to completion of the due diligence period assigned to EQT draws closer. We also cannot rule out the likelihood of a counter-bidder emerging.
Accordingly, there is potential for further share price upside. However, we acknowledge that a key risk to our view is a retracement in the share price to pre-offer levels in the event that the current EQT offer is withdrawn or does not proceed.
Charting View
CWY rebounded well a few weeks ago on good volume, and the recent pullback was on lower volumes which is a positive sign. CWY is likely to continue heading higher from here and that could see it retest resistance near $3.
Michael Gable is managing director of Fairmont Equities.
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