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Eurozone weakness strikes Shanks

RESULTS: A European construction downturn is hitting waste volumes and, with no recovery in sight, Shanks' shares look set to struggle
May 16, 2013

Tough European construction conditions dragged pre-tax profit at waste management group Shanks (SKS) down 24 per cent year on year to £26.5m, after adjusting for £61.8m of exceptional items - largely redundancy costs and a writedown on Scottish recycling assets.

IC TIP: Sell at 81.3p

With much of the eurozone in recession, and new residential building permits in the Netherlands at their lowest level for over half a century, Shanks' solid waste volumes in the Benelux region slumped 15 per cent to £331m. Moreover, competition is driving down gate prices and a Chinese slowdown has hit prices for recyclable material - so Benelux trading profit slumped 38 per cent to £16.3m. The UK solid waste market was even tougher - revenue there fell 24 per cent to £59.8m, and last year's £2.3m profit was turned into a £3.2m loss. In response, management cut headcount by 310 in the period and aims to raise that to around 420 in the solid waste business overall - that should deliver annual savings of £20m by the end of March 2016. Still, the Dutch hazardous waste business was more stable - trading profit there dipped 10 per cent to £19.1m. The UK municipal waste business, meanwhile, grew revenues 4 per cent and profits jumped 80 per cent to £9.2m

Broker Investec Securities expects adjusted pre-tax profit of £28.1m for 2014, giving adjusted EPS of 5.2p (from £26.5m and 5p in 2013).

SHANKS (SKS)

ORD PRICE:81.3pMARKET VALUE:£323m
TOUCH:81.3-81.8p12-MONTH HIGH:99pLOW: 73p
DIVIDEND YIELD:4.2%PE RATIO:na
NET ASSET VALUE:79p*NET DEBT:88%

Year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200968529.31.001.70
201068419.64.803.00
201171721.25.503.25
201275029.96.503.45
2013670-35.3-8.903.45
% change-11---

Ex-div: 3 Jul

Payment: 2 Aug

*Includes intangible assets of £252m, or 63p a share