Silverdell shares offer the enticing opportunity to buy into a relatively defensive growth story on a single-digit PE ratio. While recessions come and go, the need to dispose of hazardous waste such as asbestos is a recurring theme. True, the stuff can't be used in new construction, but there is still around £17bn of asbestos removal work left in the UK. And this is one of the aspects of hazardous waste that Silverdell (SID) specialises in. Importantly, unlike other types of waste disposal, asbestos treatment and removal is a highly complex business, providing natural barriers for potential entrants. What's more, there are strict regulations governing the handling of asbestos, making its treatment a largely non-discretionary expense. And it is also worth pointing out that asbestos-related deaths remain the biggest work-related killer in the UK, claiming a life every two hours, and asbestos-related claims are expected to exceed £11bn over the next 40 years.
- Asbestos removal a non-discretionary expense
- Strong barriers to entry for hazardous waste treatment
- Widening revenue stream
- Profits rising sharply
- Modest dividend
- Exposure to cutbacks in new construction
However, Silverdell's range of services on offer expanded sharply last year with the acquisition of EDS, a specialist in dismantling and decommissioning. Silverdell can now offer an end-to-end decommissioning, dismantling and remediation service. The one-stop offering is already starting to pay off. Earlier this month, the group won a £12m order to decommission an oil-fired power station in Canada, adding to an order book that more than doubled last year to £219m, of which £97m is work scheduled for this year. And the group also has plans to build its consulting business not only in Canada but in Australia as well.
Silverdell operates three divisions, of which remediation is the largest accounting for 47 per cent of underlying profits. This is where the group provides services that identify, treat and remove harmful substances. Decommissioning, which accounted for 22 per cent of last year's profits, includes the EDS operation that was bought at the end of the third quarter and involves activities such as recycling precious metals from factories. The consulting division provides environmental surveys, monitoring and project management services.
| SILVERDELL (SID) | ||||
|---|---|---|---|---|
| ORD PRICE: | 17p | MARKET VALUE: | £53.2m | |
| TOUCH: | 17-17.5p | 12M HIGH: | 18.1p | LOW: 8.25p |
| DIVIDEND YIELD: | 2.4% | PE RATIO: | 8 | |
| NET ASSET VALUE*: | 12p | NET DEBT: | 29% | |
| Year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 59.5 | -6.87 | -7.30 | nil |
| 2010 | 56.7 | 1.83 | 0.50 | nil |
| 2011 | 59.7 | 2.46 | 1.10 | nil |
| 2012 | 82.5 | 0.53 | 0.00 | 0.18 |
| 2013* | 133 | 9.30 | 2.10 | 0.40 |
| % change | +61 | - | - | +122 |
Normal market size: 7,000 Market makers: 6 Beta: 0.45 Finncap estimates, underlying pre-tax profits and EPS not directly comparable. *Includes intangibles of £26m, or 8.4p per share | ||||
Of course, no business is entirely immune from the effects of an economic downturn, and clearing potential building areas of hazardous waste has in some cases been put on hold until the climate improves. However, construction accounts for just 8 per cent of total remediation revenue.
Silverdell already has an impressive list of customers, predominantly blue-chip multi-national groups in power generation, oil and gas, chemicals and associated industries. But there is also a significant revenue stream from public sector work. As well as growing its capability as a supplier of high-hazard industrial maintenance and support services within a number of framework contracts, there are exciting opportunities in the pipeline, not least the decommissioning of first and second generation nuclear power stations, including continental Europe, where 150 plants are expected to be decommissioned over the next 15 years at an average cost of around £500m per plant.
