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Shanks' low country woes

Shanks has posted a half-year loss due to problems at its Benelux operations
November 6, 2014

Shanks (SKS) revealed an operating loss of £1.8m at the half-year mark, against a profit of £20.2m at the 2013 interim. But the waste management group's share price held firm, as the underlying problems at its Benelux operations had been flagged at the end of September.

IC TIP: Sell at 92p

The loss can be attributed to a £11.1m non-cash impairment linked to the performance of Shanks' Solid Waste Netherlands business, together with £3.3m in restructuring charges and a £3m write-off in its Organics Canada operation. Even without these charges, however, operating profit fell 30 per cent year on year to £18.1m, underlining the challenges faced by Shanks over the last six months.

Chief executive Peter Dilnot believes the remedial actions taken by the group "will support a stronger second half". However, the problems in its Benelux operations will continue to hinder performance into next year, while any immediate benefit from ongoing cost-cutting initiatives will be offset by weak waste volumes.

Given its high level of operational gearing, Shanks is well-placed to profit from any recovery in its Benelux markets, but there is little sign of that yet. It will take time to optimise the business model, but we expect increased investment in the group's growth divisions - Hazardous Waste, UK Municipal and Organics - to bear fruit eventually.

Broker Edison expects Shanks to report full-year EPS of 5.1p, down from 6.4p in 2013-14.

SHANKS GROUP (SKS)
ORD PRICE:92pMARKET VALUE:£365m
TOUCH:91p-92p12-MONTH HIGH:121pLOW: 85p
DIVIDEND YIELD:3.8%PE RATIO:na
NET ASSET VALUE:58p*NET DEBT:65%

Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2013 (restated)32412.82.41.1
2014305-8.6-2.51.1
% change-6---

Ex-div: 4 Dec

Payment: 9 Jan

*Includes intangible assets of £187m, or 47p a share