Augean — Near-term expectations reduced

Augean (LN: AUG)

Last close As at 28/03/2024

248.50

0.00 (0.00%)

Market capitalisation

261m

More on this equity

Research: Industrials

Augean — Near-term expectations reduced

Augean’s (AUG) dispute with HMRC over landfill taxes and tough trading conditions in its key markets creates significant uncertainty. The company has taken decisive steps to reshape its management team and reduce its cost base, in order to provide Augean with a stronger and more dynamic base from which to grow post a resolution to the dispute.

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Industrials

Augean

Near-term expectations reduced

Board changes and trading update

Industrial support services

30 October 2017

Price

32.00p

Market cap

£33m

Net debt (£m) as at 30 June 2017

12.5

Shares in issue

102.8m

Free float

99.3%

Code

AUG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

26.7

(39.1)

(39.1)

Rel (local)

23.4

(39.6)

(44.0)

52-week high/low

66.0p

23.0p

Business description

Augean manages hazardous waste through a divisional structure of five businesses: Radioactive Waste Services (3% of group revenues), Energy & Construction (33%), Industry & Infrastructure (30%), Augean Integrated Services (13%) and Augean North Sea Services (21%)

Next events

Trading update

January 2018

Analyst

Graeme Moyse

+44 (0)20 3077 5700

Augean is a research client of Edison Investment Research Limited

Augean’s (AUG) dispute with HMRC over landfill taxes and tough trading conditions in its key markets creates significant uncertainty. The company has taken decisive steps to reshape its management team and reduce its cost base, in order to provide Augean with a stronger and more dynamic base from which to grow post a resolution to the dispute.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/15

61.0

6.2

5.58

0.65

5.7

2.0

12/16

76.0

7.2

6.47

1.00

4.9

3.1

12/17e

83.2

6.0

5.56

1.20

5.8

3.8

12/18e

84.3

8.1

6.88

1.44

4.7

4.5

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Management changes

Stewart Davies has resigned from his position as CEO, by mutual consent, and is to be replaced by Jim Meredith, who will expand his role as non-executive chairman to become executive chairman. We expect Mr Meredith (acquired 1m shares in October 2017), who has significant experience in the waste industry, including as CEO, to focus his attention on finding a resolution to the dispute with HMRC and maximising the cash return from the business. Augean cautioned that the dispute with HMRC is unlikely to be resolved imminently. The ranks of the non-executive directors have also been strengthened with appointment of Christopher Mills and Roger McDowell. The latter was formerly a board member of Augean (2004-15) and served as interim CEO (2006-7) and interim chairman (2010-12).

Tougher trading but additional cost control

AUG warned that FY17 PBT will below the FY16 level and that FY18 profits will also be below previous expectations (Edison FY18e was £8.3m), mainly the result of continuing weakness in the soil market (volumes and price) and legacy costs associated with Colt. To counter the tough trading, AUG announced additional cost reductions of £1.7m (total target of £3m). To facilitate the cost reduction, AUG will incur an additional one-off exceptional charge of £0.9m (£0.7m announced at H117). The cost savings are expected to yield a full year benefit in FY18.

Reduction to earnings; valuation update

We have updated our forecasts to reflect recent announcements and the H1 results. We now expect FY17 EBITDA of £11.9m (previously £14.8m) and PBT of £6.0m (£7.3m). For FY18, we forecast EBITDA of £14.4m (£16.3m) and PBT of £8.1m (£8.3m). For now our DPS forecasts remain unchanged, but AUG’s ability to pay will need to be assessed in light of the scale of any settlement with HMRC. We forecast lower capex and have reduced our tax rate to 19.5%. Our DCF valuation, which does not include the cost of settling with HMRC, remains at 67p/share. The recent share price weakness now means there is a significant difference between our DCF valuation and the current share price (equivalent to c £34m) reflecting, we believe, the uncertainty surrounding the scale of the potential payment to HMRC.

Exhibit 1: Financial summary

£'000

2015

2016

2017e

2018e

2019e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

61,005

75,959

83,212

84,295

85,918

Cost of Sales

(42,592)

(51,796)

(62,474)

(61,026)

(62,013)

Gross Profit

18,413

24,163

20,738

23,269

23,905

EBITDA

 

 

12,477

14,315

11,900

14,430

15,066

Operating Profit (before amort. and except & SBP.)

7,374

8,303

7,507

9,625

9,881

Intangible Amortisation

(133)

(262)

(232)

(232)

(232)

Exceptionals

(3,508)

(5,719)

(1,600)

0

0

Share Based Payments

(421)

(243)

(500)

(500)

(500)

Operating Profit

3,312

2,079

5,175

8,893

9,149

Associated company

0

0

0

0

0

Exceptionals

0

0

0

0

0

Net Interest

(788)

(812)

(975)

(1,027)

(1,027)

Profit Before Tax (norm)

 

 

6,165

7,248

6,032

8,098

8,354

Profit Before Tax (IFRS)

 

 

2,524

1,267

4,200

7,866

8,122

Tax

(837)

(862)

(819)

(1,534)

(1,584)

Profit After Tax (norm)

5,749

6,629

5,713

7,064

7,270

Profit After Tax (IFRS)

1,687

405

3,381

6,332

6,538

Average Number of Shares Outstanding (m)

102.1

102.4

102.7

102.7

102.7

EPS - normalised (p)

 

 

5.58

6.47

5.56

6.88

7.08

EPS - normalised and fully diluted (p)

 

5.58

6.47

5.56

6.88

7.08

EPS - (IFRS) (p)

 

 

1.60

0.40

3.29

6.16

6.36

Dividend per share (p)

0.65

1.00

1.20

1.44

1.73

Gross Margin (%)

30.2

31.8

24.9

27.6

27.8

EBITDA Margin (%)

20.5

18.8

14.3

17.1

17.5

Operating Margin (before GW and except.) (%)

12.1

10.9

9.0

11.4

11.5

BALANCE SHEET

Fixed Assets

 

 

65,205

71,913

75,263

76,425

77,054

Intangible Assets

19,971

26,262

26,030

25,798

25,566

Tangible Assets

42,918

44,475

48,033

49,227

50,042

Investments

2,316

1,176

1,200

1,400

1,446

Current Assets

 

 

15,688

22,028

19,092

24,503

27,514

Stocks

306

379

457

447

454

Debtors

11,829

18,461

16,800

16,800

17,124

Cash

3,553

3,188

1,834

7,256

9,936

Other

0

0

0

0

0

Current Liabilities

 

 

(12,857)

(18,071)

(13,990)

(14,965)

(13,046)

Creditors

(11,803)

(17,900)

(13,990)

(14,965)

(13,046)

Short term borrowings

(1,054)

(171)

0

0

0

Long Term Liabilities

 

 

(13,638)

(21,303)

(22,886)

(22,886)

(22,886)

Long term borrowings

(6,764)

(13,833)

(15,333)

(15,333)

(15,333)

Other long term liabilities

(6,874)

(7,470)

(7,553)

(7,553)

(7,553)

Net Assets

 

 

54,398

54,567

57,478

63,077

68,636

CASH FLOW

Operating Cash Flow

 

 

12,348

12,859

8,064

14,241

12,719

Net Interest

(715)

(704)

(975)

(1,027)

(1,027)

Tax

(1,105)

(941)

(852)

(559)

(1,532)

Capex

(7,525)

(8,386)

(7,950)

(6,000)

(6,000)

Acquisitions/disposals

(1,141)

(8,901)

0

0

0

Financing

96

187

57

0

0

Dividends

(511)

(665)

(1,027)

(1,233)

(1,479)

Net Cash Flow

1,447

(6,551)

(2,683)

5,422

2,680

Opening net debt/(cash)

 

 

5,712

4,265

10,816

13,499

8,077

HP finance leases initiated

0

0

0

0

0

Other

0

0

0

0

(0)

Closing net debt/(cash)

 

 

4,265

10,816

13,499

8,077

5,397

Source: Augean, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Augean and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Augean and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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