Shares in Biffa made a good market debut on Monday after completion of the waste management firm's demerger from Severn Trent.

The performance was boosted by stockbrokers Cazenove initiating coverage on the stock with a 'buy' rating and 290p price target, according to dealers.

Biffa shares were trading at 274p, having hit a high of 282p after opening at 257 pence, well above the 260 pence demerger valuation, with 5.97 million shares traded.

Severn Trent shareholders received one new Biffa share for each old share held after the shares were consolidated on a two-for-three basis, and #576 million of surplus capital was returned, equivalent to 165p per old Severn Trent share.
In a note published yesterday Cazenove said Biffa is the number two UK player in the waste management market, with an estimated eight per cent share. This comprises six per cent of the collection services segment and 12 per cent of the landfill segment.
Cazenove noted that the waste management is an essential service and has utility-like qualities, so demand trends should be resilient.

It added that waste volumes in the UK are growing up to one cent per year but the UK waste management industry by value is growing at five to ten per cent, with regulation stimulating a shift from landfill to recycling, and landfill scarcity driving up prices by up to ten per cent.

Cazenove added that Biffa's 73 million cubic metres of consented void landfill is a scarce asset in the UK, with limited new space entering the market giving Biffa a protected market position.

Meanwhile, shares in Birmingham-based Severn Trent also benefited from the demerger, as ongoing bid hopes intensified.

But Merrill Lynch downgraded its stance on Severn Trent to 'neutral' from 'buy' and Citigroup to 'hold' from 'buy'.

In a note to clients, Merrill Lynch said as a result of the share exchange Severn Trent's issued share capital is now around #235 million, and its market capitalisation is reduced to about #3.3 billion.

The broker noted that Osprey's recent 1,555 pence per share offer for AWG has demonstrated the current appetite for infrastructure issues, particularly in the UK where such regulated assets are more readily accessible.

However, since the Biffa demerger terms were announced on September 12, Merrill Lynch pointed out that Severn Trent shares have added nine per cent in value.

Meanwhile, Citigroup also downgraded its rating on Severn Trent to 'hold' from 'buy.' In a note to clients, the broker said with plenty of buyers around, and a management potentially willing to sell, Severn Trent certainly looks like a credible takeover target.