Gamble of the week: niche waste specialist

By Paul Hill Sep 11, 2009

Paul Hill

Share with
friends:

Comments (0) Print this article

Augean, a profitable UK hazardous waste specialist, has been ignored by the recent 'garbage' rally. Since its 2005 high of 270p, the shares have been on a one-way trajectory south, to levels that are now sparking interest from potential buyers.

For now, the board has resisted selling on the cheap. The most recent offer – from One51, an Irish investment house which owns a 27% stake – was rejected in July.

So what's causing the takeover fever? Well, undoubtedly the jewel in the company's crown is its ownership of three sites, which together control about 50% (or 6.5 million cubic metres) of Britain's hazardous waste landfill.

On top of its scarcity value, this niche area became a much more desirable place to operate when four years ago the European Union passed legislation insisting on the separation of hazardous and non-hazardous waste – which sent disposal prices soaring to an average of around £43 per ton (excluding taxes).

Augean (LSE: AUG)

And to take advantage of the shift towards recycling, Augean also runs six treatment facilities across the country that neutralise contaminants so that dangerous waste can be disposed of safely.  

That said, even this resilient business has suffered a temporary reduction in industrial and construction output caused by the economic slump. But longer term the fundamentals remain intact, since more waste is being deemed 'hazardous', which will increase the volumes that have to be treated and disposed of.   I would value the landfill and the treatment units at £39m and £20m respectively. After adjusting for the £16.8m of net debt, that generates an intrinsic worth of about 60p a share.

Certainly there are short-term speedbumps given the poor state of the domestic economy, but even so, in light of its strategic importance within the industry – especially for those trade buyers wishing to build up a full service offering – then Augean looks like a trophy asset that will eventually be snapped up. Especially since serial activist, Christopher Mills, also owns 29% of the equity via his North Atlantic Value fund.

Interim results are due out in mid-September.  

Recommendation: speculative BUY at 42.5p (market capitalisation £28m)

• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments

Comments (0)

Published in Tips & advice | More articles by Paul Hill

Share with
friends:

Related articles

Leave a comment

This will be the name displayed with your comment.

This helps us verify comments are genuine. It will not be displayed anywhere on the site and is stored confidentially.

Please keep your comment within 1,000 characters and relevant to the main topic. We encourage healthy debate, but we don't allow insults or bad language. Anything off topic or unpleasant, we'll remove. Enjoy the conversation! Thank you.

captcha To prevent spam-related comments please enter the characters shown in the 'Captcha' box to the left.

By leaving a comment you accept our terms and conditions.


FREE - MoneyWeek's daily investment emailJohn Stepek

Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.

>