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Augean boosted by North Sea operations

The waste disposal group has seen a marked sales increase from its North Sea activities
July 17, 2019

The UK is something of a laggard in the field of waste management, a view that has been reinforced since China’s ban on imports of contaminated waste – and our subsequent inability to cope with the spillover. Over time, increased focus on the way we dispose of waste should provide a favourable backdrop for the industry, but even though tightening regulatory strictures bring greater opportunities, there are potential pitfalls.

IC TIP: Hold at 120p

Although Augean (AUG) delivered a sharp rise in comparative half-year earnings, together with a 181 per cent hike in net operating cash flow, any hopes for a reinstated dividend were quashed as the Yorkshire-based group confirmed that payment of a landfill tax bill for £34.7m (£37.3m including interest) had been delayed until the conclusion of a tribunal into the matter.

There was increased activity reported across all its facilities, but attention will focus on the North Sea Services (NNS) subsidiary, where revenue increased by 43 per cent to £13.7m “on new customer wins in industrial services and waste management”. The group is currently cleaning up Shell’s Curlew vessel in the Port of Dundee prior to its scrapping. Expenditure on the decommissioning of North Sea oil and gas assets is set to rise substantially in coming years, so Augean’s foothold in the market should underpin further revenue growth.

Bloomberg consensus estimates give adjusted EPS of 13.1p for the December 2020 year-end, against 12.1p in FY2019.

AUGEAN (AUG)    
ORD PRICE:120pMARKET VALUE:£125m
TOUCH:117-123p12-MONTH HIGH:129pLOW: 36p
DIVIDEND YIELD:nilPE RATIO:9
NET ASSET VALUE:65p*NET CASH:£22.8m
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201836.26.13.4nil
201952.49.07.0nil
% change+44+47+110-
Ex-div:-   
Payment:-   
*Includes intangible assets of £19.8m, or 19p a share