Augean - Strong underlying performance in FY19
FY19 results were ahead of our expectations on an underlying basis and extended the recovery in profitability evident since 2017. With the financial liability to HMRC now discharged and strong growth expected in Augean’s key markets, we believe that the company is well positioned to continue to deliver returns for shareholders.
28 Feb 20
Positioned for further growth
Augean has reported substantial progress in FY2019 with adjusted PBT up by 68% to £19.2m. The statement highlights a strong start to trading in 2020 and a robust pipeline of activity that leaves the Board confident in Augean’s prospects for FY2020E. Net debt has risen materially to £17.8m after the payment of £40.4m (including accrued interest) to the HMRC in respect of disputed Landfill Tax assessments that continues to be robustly challenged by management. The HMRC payment now allows the focus to move to the strategic development of the Group and removes an issue of concern for investors. There is a FCF yield of over 9% and a return to net cash is expected by year end. At this early stage in FY2020E we make no change to our earnings forecasts.
26 Feb 20
In line trading update
Augean has issued an in-line trading update highlighting strong trading in its final quarter and its expectation that it will report adjusted PBT for the year to December 2019 at least in line with market consensus of £18.4m. We make no adjustment to our forecasts at this time.
13 Jan 20
Small Cap Feast
Calisen Group. Potential Intention to Float. Owner and manager of essential energy infrastructure assets . Consolidated FY Dec 18 revenue £162.1m and operating profit £25.4m. Raising up to £300m in primary plus partial vendor sale. The Global Sustainable Farmland Income Trust will invest in a diversified portfolio of operational farmland assets located in major agricultural markets including the United States, Europe, New Zealand, Australia and certain countries within Latin and South America. Raising up to $300m. Due 28 February. Investment firm Nippon Active Value fund is seeking to raise up to £200m at an issue price of 100p per share via an IPO. The company aims to invest in a portfolio of quoted Japanese stocks with market capitalisations of up to $1bn. First day of dealings expected early February.
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13 Jan 20
Renewed banking facilities and HMRC payment
Augean has announced the renewal and extension of the Group’s banking facilities and also that it has paid all outstanding and disputed HMRC Landfill Tax assessments totalling £40.4m, including accrued interest. Management reaffirms it will continue to robustly challenge all HMRC assessments based on legal advice that the Group has correctly collected and paid appropriate landfill tax. The HMRC payment allows management to focus on the strategic development of the Group and provides investors with a much cleaner basis for valuation.
10 Dec 19
Augean - Growth fuels upside
Augean has reorganised its business and now enjoys a strong competitive position in its key markets, allowing it to capture underlying market growth and significantly improve profitability. The H119 results and recent trading update suggest this trend is set to continue. Augean’s market rating, even allowing for the outstanding tax liability with HMRC, appears very modest for a company with significant growth potential.
18 Oct 19
Securing future landfill capacity
Augean has announced that it has secured an option to purchase 90 acres of land adjacent to its Peterborough landfill. With appropriate planning and permitting consent the optioned land extension would prolong the life of the site to the mid-2040s. This is an important development that aligns with a national need for hazardous landfill and soil treatment in the South of England and would re-enforce Augean’s leading position in the UK hazardous landfill market.
18 Oct 19
Positive trading update, material upgrades
Augean has issued an update that highlights a strong Group trading performance in the third quarter. As a result, management expects adjusted profit before tax to be materially ahead of the current consensus forecast of £16.5m for the year to 31st December 2019. The Group notes that it has benefitted from a 20% increase in landfill volumes across all waste types, a further 20% improvement in landfill pricing, increased radioactive waste profit and a good performance by both the treatment and North Sea businesses. We have upgraded EPS forecasts for FY2019E by 17%, including the benefit of our revised expectation of a sustainable 19% tax charge compared to 23% previously. Outer year forecasts rise further as we adjust to factor in established trends and remove now undue levels of conservatism.
16 Oct 19
Small Cap Feast
Registration document approved for Helios Towers. The Group provides essential network services, flexible infrastructure solutions and reliable power supply to mobile network operators in five African growth economies. Revenue increased 7 per cent. year-on-year to US$191m (H1 2018: US$178m), with Adjusted EBITDA up 15 per cent. year-on-year at US$99m (H1 2018: US$86m) for the six months ended 30 June 2019. Pricing rumoured at 115p to 145p implying valuation of up to $1.8bn. Expected 18 Oct 2019. African Export-Import Bank a supranational financial institution w hose purpose is to facilitate, prom ote and expand intra- and extra- African trade, of its potential intention to publish a registration document, the Bank hereby confirms its intention to proceed with an Initial Public Offering. The GDRs are expected to be admitted to the standard listing segment of the Official List of the FCA and to trading on the Main Market of the LSE.
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16 Oct 19
Strong H1 progress and further upgrades
Management has delivered a very strong set of interims and anticipates results ahead of market expectations for the full year. Including today’s 10% upgrade, FY2019E PBT forecasts have now risen by 45% so far this year as momentum has built. Cost savings now exceed expectation at £6m p.a. and market drivers remain strong in key segments within the Treatment & Disposal and North Sea divisions, where H1 revenues were ahead 39% and 43% respectively. We still see forecasts as conservatively framed and would highlight that net cash is now at £22.8m, up £14.6m in the first half
17 Jul 19
PBT forecasts increased again – up another 10%
Management has increased guidance again following Q2 19 trading ahead of expectations. Performance has been good across the group, with particularly strong contributions from landfill and radioactives. We have increased estimated growth rates for FY19, but made no changes to our cautious assumptions for subsequent years. This has driven upgrades to adjusted PBT of 10% for FY19, 9% for FY20 and 8% for FY21, with corresponding increases in net cash. Given the group’s strong momentum, we have also revisited our illustration of how forecasts might develop if trading remains buoyant, despite the uncertain economic backdrop. This suggests potential for additional upgrades of 10-31% across our forecast horizon. There is no further update on the group’s discussions with HMRC, which continues to weigh on the group’s valuation multiples, and offers material upside as the issue is resolved.
21 Jun 19
Small Cap Feast
Alumasc Group plc, the prem ium building products, system s and solutions group, has announced its intention to m ove from the Premium Segment of the main market to AIM. Expected market cap of £33.4m. Expected 25 June 2019 Expected market cap of £36.5m Argentex a UK-based forex service provider founded in 2011 by its current management team which operates as a Riskless Principal for nonspeculative and forward foreign exchange as structured financial derivatives is looking to join AIM. Offer TBC, expected 25 June
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21 Jun 19
Forecasts increased by 15% on strong trading
Augean has given a positive update on trading and materially increased its guidance for FY19. This follows strong performances from its businesses in Q1 and good continuing momentum. Progress has been broadly based, with good profit growth from both Treatment & Disposal and North Sea Services. We increased our PBT estimates by 4-6% in March, while highlighting that further significant upgrades could be in order if trading were to remain buoyant. Today we have increased our PBT estimates by 15% for FY19 and FY20, and by 14% for FY21, with a corresponding increase in net cash to £50.5m by the end of our forecast horizon. These new forecasts put the shares on very low multiples (EV/EBITDA 3.3x for FY19), with potential for further material upside as the landfill tax issue with HMRC is resolved.
01 May 19
Small Cap Feast
SDX Energy plc—a North Africa focused oil and gas company, announces its intention to complete a Canadian plan of arrangement under section 192 of the Canada Business Corporations Act and will have shares de-listed from the TSX-V and admitted to trading on AIM. Expected 28 May 2019, anticipated market cap of £76m Renold plc—a leading international supplier of industrial chains and related power transmission products, announced that it will cancel the listing of the Company from the premium segment and apply for admission on AIM. Expected 06 June 2019. Distribution Finance Capital Holdings plc — specialist lender which builds relationships with manufacturers and then provides working capital solutions up and down their supply chains to drive their growth is looking to join AIM. No raise, secondary offering of £19.8m at 90p, expected market cap of £95.98m. Expected 09 May 2019. Alumasc Group plc, the premium building products, systems and solutions group, has announced its intention to move from the Premium Segment of the main market to AIM. Expected market cap of £33.4m. Expected 25 June 2019 NEX Exchange Arbuthnot Banking Group plc, primarily involved in banking and financial services including commercial banking, private banking, wealth planning and investment management, is looking to joining the NEX Exchange Growth Market. Expected 17 May 2019
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01 May 19
Further update from HMRC, total potential liability appears unchanged
Augean has received further notifications from HMRC regarding potential landfill tax, with updated final assessments for both Augean South and Augean North. These total £34.7m (plus interest), which remains in line with the c.£30-35m range implied by HMRC’s communications since last November and with management’s expectations. Augean has appealed the assessments for both businesses and the next step is the tax tribunal, which is expected in H1 2020. HMRC has agreed that payment of tax for Augean North can be deferred until the conclusion of the tax tribunal, and the group is waiting to hear if its application for similar deferment will be agreed for Augean South. Augean and its legal advisors continue to believe that the group has collected and paid landfill tax correctly and will take all appropriate legal channels to challenge the assessments received and mitigate payment until the appeals have concluded.
24 Apr 19
Strong growth in FY18; in line with year end trading update
Augean has reported strong growth for FY18, in line with expectations which were upgraded significantly through the last year. Adjusted PBT increased by 69% to £11.4m, with good progress from both business units. This was driven by strong underlying trading, delivery of material cost savings and exit from unprofitable businesses. The balance sheet has also been transformed, with net cash of £8.2m vs. net debt of £10.8m at the start of the year, reflecting a clear focus on cash. FY19 has started well, with a number of contract renewals and new contracts already announced. There is no further news on the group’s potential landfill tax liabilities, following last week‘s update. The shares remain on low valuation multiples due to Augean’s ongoing discussions with HMRC, suggesting material upside as the issue is resolved.
26 Feb 19
East Kent high temperature incinerator sold
Augean has announced the sale of its East Kent high temperature incinerator (HTI) to Wastecare Ltd, a customer of the group, saving it the time and cost of mothballing the facility. Augean will receive £3.35m in cash, with £1.0m due immediately and £2.35m within three months, generating a profit on sale of £2.5m. We have updated our forecasts to remove planned closure costs for the HTI and to reflect the exceptional profit on sale. This has increased our estimate for net cash to £17.0m for 2019. The shares continue to trade on very low valuation multiples (EV/EBITDA 3.1x for 2019, P/E 7.7x) due to the ongoing discussions with HMRC regarding potential landfill tax liabilities. This is despite significant improvement in underlying business performance and the group’s balance sheet over the last year, which could imply material share price upside as the landfill tax issue is resolved.
28 Jan 19
2018 trading in line; stronger year end net cash
Augean has confirmed continuing strong trading through H2, with profit for 2018 expected to be in line with recently upgraded expectations. The year end net cash position was higher than anticipated at £8.2m (N+1Se £4.1m) reflecting strong trading in the last few weeks of the year and favourable timing of payments. We have made no changes to our P&L forecasts, but have increased our estimates for net cash in line with the update. The shares have performed well through 2018, driven by significant improvement in underlying business performance and forecast upgrades. However they remain on very low valuation multiples (EV/EBITDA 3.2x for 2019, P/E 7.7x) as a result of the ongoing discussions with HMRC regarding potential landfill tax liabilities. This could imply material share price upside as the landfill tax issue is resolved.
09 Jan 19
HMRC agreement to defer tax payment pending outcome of tribunal
In October, Augean received final assessments from HMRC for landfill tax for Augean North, which requested payment as soon as possible (it has yet to receive final assessments for Augean South). Augean and its legal advisors firmly believe that it has correctly collected and paid landfill tax, and management has previously noted that the group would challenge the assessments through all appropriate legal channels and seek to mitigate payment. Augean has now received agreement from HMRC to defer payment of the tax assessed for Augean North until the outcome of the tax tribunal has concluded. This is clearly a helpful development, but has no impact on our forecasts, which do not include the potential liability due to the ongoing uncertainty about its size, timing and probability.
21 Dec 18
Small Cap Feast
PetroTal Corp is an oil and gas company whose shares are currently admitted to trading on the TSXV. The Company is focused on development of oil and gas assets in Peru and it currently has controlling interests in three onshore Peru license blocks. No new funds being raised. Due 21 Dec. Mkt cap c.£80m Litigation Capital Management—provider of litigation financing and ancillary services, moving from ASX (ASX:LCA) to AIM. Offer TBC. Due 18 Dec. Mkt Cap A$64m. Crossword Cybersecurity PLC* (NEX:CCS)—the technology commercialisation company focusing exclusively on the cyber security sector is due to start trading on AIM 14 December. Raising £2m at 290p. Mkt cap at issue price £13.6m. Manolete Partners—leading UK insolvency litigation financing business looking to join AIM raising £16.3m as a placing and £13.1 realised by the selling shareholder at 175p. Market cap £76.3m, expected 14 December Greenfields Petroleum (TSX-V:GNF) production focused company with operated assets in Azerbaijan seeking AIM dual listing including $60m private placement. Mkt cap $12.6m CAD. Expected mid December.
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12 Dec 18
Small Cap Feast
Wentworth Resources— oil and gas exploration and production company, with assets in the onshore Rovuma Basin of East Africa. Introduction only. Mkt Cap c £50m . Due today Renalytix AI—developer of artificial intelligence ("AI") decision support and clinical management tools for improving early diagnosis, continual monitoring and drug development for kidney disease. incorporated in March 2018 as a subsidiary of EKF Diagnostics Holdings (AIM-EKF). Total fundraising £22.25m.. Mkt cap - c. £67.5- £71.0m. Due 6 Nov. Finncap—proposed acquisition of M&A adviser Cavendish Corporate Finance and AIM admission. Offer TBA Kropz PLC—an emerging plant nutrient producer with an advanced stage phosphate mining project in South Africa, a phosphate project in the Republic of Congo and exploration assets in Ghana. Looking to join AIM, offer TBC, market cap TBC. Due Late October. Azalea Energy—oil and gas production and development company based in Louisiana, United States. Net production of 13 MMcfe/D (2,200 boepd) and total 1P proved reserves of 91 Bcfe (15.1 mmboe), 2P reserves of 111 Bcfe (18.5 mmboe) raising up to $38m, expected mkt cap over $100m. Due 29 Oct Path Investments— First acquisition of a 50 per cent. participating interest in the producing Alfeld-Elze II gas field located 22 kilometres south of Hannover in Germany. Seeking £10m raise. Due late Oct Crossword Cybersecurity PLC* (NEX:CCS)—the technology commercialisation company focusing exclusively on the cyber security sector is exploring its options in relation to a potential move to the AIM market of the London Stock Exchange which, if it were to proceed, would likely take place over the next few months.
AUG PPIX MPM PTCM ASLR AFHP PANR C21 RBD SYS1
02 Nov 18
Strong H1 profit growth; EPS upgraded by 10% pa
Augean delivered very strong profit growth in H1 18, with adjusted PBT up 35%. This reflected management’s focus on optimising the business and increasing profitability, while also driving good growth in sales. The balance sheet strengthened materially, with net debt reduced to £2.7m at the half year and to just £0.4m by 13th September. Management now expects profits for FY18 to exceed previous expectations and we have increased our forecasts for adjusted PBT and EPS by 10% pa. There is little news regarding potential landfill tax liabilities. Nine assessments have now been received, although not on a consistent basis. Augean remains in cooperative discussions with HMRC to resolve the matter and will continue to challenge the assessments it has or may receive, through the tax tribunal system if appropriate.
18 Sep 18
Advanced Medical Solutions (AMS LN) OEM woundcare a millstone on Branded surgical division | Augean (AUG LN) Strong H1 profit growth; EPS upgraded by 10% pa | Be Heard (BHRD LN) Focus on execution improving | Frontier Smart Technologies Group (FST LN) Value in both divisions despite tough period | Northgate (NTG LN) In line AGM Statement, with the business on an improving trajectory | Springfield Properties (SPR LN) Sector leading growth; outperformance in cash
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18 Sep 18
Augean (AUG LN) Strong H1 PBT growth; material reduction in net debt | Brewin Dolphin Holdings (BRW LN) Impressive 8% annualised discretionary flows in Q3 | Burford Capital (BUR LN) H1 results – c.15% up on a strong comp – increasing estimates and TP | Earthport (EPO LN) Continued progress with operational changes | EKF Diagnostics (EKF LN) Exclusive agreement with Asahi Kasei expands US products portfolio | IDOX (IDOX LN) Framework in place for improved future performance | Marston’s (MARS LN) Positive Q3 update goes a long way to allay forecast and DPS concerns | Rathbone Brothers (RAT LN) Solid H1 earnings, but still modest organic net inflows | Victrex (VCT LN) Another strong volume performance, FY guidance maintained
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25 Jul 18
Small Cap Brunch
RA International is a leading provider of services to remote locations in Africa and the Middle East looking to join AIM raising £18.8m and 56p, market cap of £97.2m. Expected 29 June Cake Box Holdings—franchise retailer of cakes with a growing store base across the UK looking to join AIM, Sell down of £16.5m, Mkt Cap £43.2m. Mar18 FY rev £12.8m, underlying earnings £3.7m. Due 27 June. Mind Gym. Behavioural science business that uses scalable proprietary products to deliver human capital and business improvement solutions to large corporations. Offer TBA. Due 28 June Yellow Cake will use its expertise to generate value through the ownership of physical U3O8 (Uranium) together with a range of activities and opportunities connected with owning physical U3O8. Acquiring supply contract for up to $170m. Due Early July. Knights Group— UK regional legal and professional services businesses. FYApr18 rev £34.9m and adjusted operating profit was £6.8m excluding Turner Parkinson (acquiring on IPO). Offer TBA, expected 29 June. TransGlobe Energy Corporation—an independent international upstream oil and gas company with headquarters in Calgary, Canada is looking to join AIM. No Capital to be raised, market cap of £131m. Expected 29 June Strongbow Exploration (TSX:SBW) intends to dual list on AIM. Holds rights to the South Crofty underground tin mine, a former producing tin mine located in the towns of Pool and Camborne, Cornwall . The project is estimated to require the Company to raise £25 million over the next 18 months to progress to a production decision. Offer TBS. Due June.
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22 Jun 18
Augean (AUG LN) Consultation on Colt; group trading in line | Brewin Dolphin Holdings (BRW LN) Solid outturn, margin maintained in H1 | Itaconix (ITX LN) Joint marketing effort defined with AkzoNobel | LiDCO Group (LID LN) Trading update points to increased US traction | Marston’s (MARS LN) Broadly in line interims | Speedy Hire (SDY LN) Earnings momentum continues with results ahead of expectations | Zotefoams (ZTF LN) Placing to invest in (even more) new capacity
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16 May 18
Value screen refresh and 10 focus stocks
We have completed another refresh of our value style screen, first established as of 12 May 2015. As usual the screen selected the 25 stocks exhibiting the most extreme value characteristics from our universe, and we have chosen 10 stocks to focus on. Since the last refresh, two days before the last general election, which resulted in a hung parliament, the screen has performed a little better than the small-cap index with our focus stocks outperforming by about 500bps. The weighting to UK consumer stocks noted last time detracted from performance, which came as little surprise given our cautious stance, much discussed in our other strategy work this year. One might have expected more consumer exposure in the refreshed screen given this year’s severe underperformance, but it appears forecasts have been similarly downgraded, keeping much of the sector outside our value criteria
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23 Apr 18
1Spatial (SPA LN) £1.6m contract win shows further Geospatial momentum | Advanced Medical Solutions (AMS LN) Royalties flatter underlying progress, FX to impact top line | Augean (AUG LN) Update from HMRC on potential landfill tax liability | Avon Rubber (AVON LN) Disposal of AEF Inc | ECO Animal Health Group (EAH LN) ECO-Pharm Limited enhances Group offering
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03 Apr 18
Small Cap Breakfast
Perfomatrix PLC, a global end to end Performance Marketing technology and services company headquartered in the UK, is looking to join AIM in early April 2018. IPO | Crusader Resources, an ASX-listed public company incorporated in Australia, which is primarily focused on the exploration and development of gold assets in Brazil | SimplyBiz, a Financial Services Firm, looking to join AIM raising £30m via placing and £34.6m via a sale of existing ordinary shares at 170p giving a market cap of £130m. Expected 4 April
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03 Apr 18
Improving underlying cash flow
No immediate resolution to the dispute with HMRC over landfill taxes is expected and, in the absence of clarity as to the timing and scale of any potential payments, Augean’s management continues to take firm action to improve the strength of the business (disposals/cost control). The difference in market capitalisation between a share price of 25p and our DCF valuation of c 70p/share equates to c £47m and compares to the total of HMRC assessments received so far of £12m (five assessments).
21 Mar 18
A difficult year; update on HMRC
Augean had a tough 2017 in terms of profitability and HMRC assessments regarding potential landfill tax liabilities. Adjusted PBT reduced by 19% to £5.8m driven by a lossmaking legacy Colt contract, a softer year for Energy & Construction, and a higher cost base due to an increase in headcount at the end of 2016. However a sharper focus on cost control meant that net debt was held at £10.8m. Our adjusted PBT and EPS forecasts are unchanged, as segmental adjustments and the disposal of the total waste management business have been offset by cost savings. Our net debt forecasts have fallen reflecting the renewed cost focus, including the decision not to declare a dividend given the ongoing discussions with HMRC. More HMRC assessments have been received, plus a communication that the latest assessment is likely to be significantly reduced, but the total potential liability remains uncertain.
20 Mar 18
How much is a ‘good’ HMRC assessment?
Since August, Augean has released four updates and in the process lost 28p or 50% in value. Two of the updates related to HMRC landfill tax assessments, one was for the interims and the remainder related to a profit warning and changes on the Board. The first HMRC tax assessment accounted for 86% of the decline with the remaining three having little or no impact. From this it is clear that the share price is being weighed down by the potential tax liability and this, we argue, needs to be addressed before we see any material share price appreciation, regardless of the operational improvements introduced by the new management team.
13 Dec 17
Value remains - how will it be realised?
Following the announcement of a dispute with HMRC and a recent profit warning, the shares have fallen 47% to the point where significant value has now emerged. With the subsequent appointment of a new board (who own c25% of Augean), management will seek to improve shareholder value. Already, annualised cost savings of £3m have been identified and will lead to a reduction in the complexity of the business and a streamlining of reporting lines. We also argue that Augean could raise £18m to £24m from the sale of three underperforming divisions, which are dilutive to its main hazardous waste landfill activity. We initiate with a Buy and 55p T/P.
07 Nov 17
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.
30 Oct 17
N+1 Singer - Augean - Second HMRC assessment for landfill tax
Augean has been notified of a second assessment for landfill tax from HMRC. This assessment is for £0.7m plus £0.1m interest, for the quarter to October 2013, and is for Augean North. It follows the assessment received in August for £1.9m plus £0.2m interest, for the quarter to August 2013, for Augean South. Notification of this second assessment is not unexpected – Augean North’s next quarter end is October 31st, which represents a deadline for HMRC to make such a filing as there is a four year limitation on reviewing landfill tax. Augean expects further assessments to be issued by HMRC for both Augean South and Augean North to ensure subsequent quarters also remain eligible for review, while enquiries and discussions continue. Note there are no other Augean subsidiaries which are registered for landfill tax. Management believes both assessments are without merit, and will challenge these and any future assessments it may receive, through the tax tribunal system if necessary. However in the meantime the group has a potential liability of very uncertain probability, timing and size. We have made no changes to our forecasts as we cannot quantify the potential impact of these or possible future assessments.
27 Oct 17
N+1 Singer - Augean - Board changes and reduction in expectations
Augean has announced a number of Board changes. These include the resignation of CEO Stewart Davies and a move from Non-Executive Chairman to Executive Chairman for Jim Meredith. They also include the appointment of two new NEDs: Roger McDowell, who was a senior Board member of the group until 2015 and Christopher Mills, founder of Harwood Capital which is now the largest shareholder in Augean. The group has also announced further cost saving measures in response to continued weakness in trading. We have reduced our adjusted PBT forecasts by 12% for 2017, with more modest reductions of 8% for 2018 and 6% for 2019 as the cost savings take effect. There is no further news regarding the group’s potential landfill tax liability from its recent HMRC assessment.
16 Oct 17
N+1 Singer - Morning Song 16-10-2017
Augean (AUG LN) Board changes and reduction in expectations | First Derivatives (FDP LN) Agreement with European Space Agency | Futura Medical (FUM LN) Market research supports the commercial potential of Eroxon® | Low & Bonar (LWB LN) Civil Engineering struggling | Sinclair Pharma (SPH LN) Forecast update; profitability inflection and strong growth ahead
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16 Oct 17
N+1 Singer - Augean - H1 results in line with expectations
Augean reported H1 17 results in line with guidance, with adjusted PBT of £2.9m. This broadly flat profit performance reflected mixed fortunes from the individual businesses. Strong performances from Radioactive Waste Services (RWS) and North Sea Services (ANSS) were outweighed by a weak result from Industry & Infrastructure, due to losses on a legacy Colt contract. Remedial actions have already been implemented to improve group profitability and management has reiterated expectations for the full year. Our headline PBT and EPS estimates are unchanged, with good growth in each year of our forecast horizon. There is no further news regarding potential landfill tax liability from the recent HMRC assessment, which Augean believes is without merit and will appeal if it is maintained. However uncertainty regarding this assessment is weighing on the shares, which are trading on very low multiples.
19 Sep 17
N+1 Singer - Augean - Potential landfill tax liability from new HMRC assessment
HMRC has been in discussion with Augean regarding whether it has historically paid enough landfill tax on loads which contain mixed hazardous and non-hazardous waste. Augean is confident it has paid the correct landfill tax, in line with the law and official guidance of the time. However HMRC has now issued an assessment on an Augean subsidiary for landfill tax of £1.9m plus £0.2m interest, for the quarter June to August 2013. The timing of this assessment is to meet the 31st August 2017 deadline for reviewing this period, while discussions continue. Augean believes the assessment is without merit and will appeal if it is maintained. However in the meantime it seems likely that further assessments will be issued for subsequent quarters and potentially another subsidiary. The group therefore has a potential liability of very uncertain probability, timing and size, although clearly it could be significantly larger than £1.9m. Management will challenge this and any further such assessments it may receive, through the tax tribunal system if necessary, and does not intend to provide for any extra historical landfill tax. However costs of the dispute with HMRC will be shown as an exceptional item. We have made no changes to our forecasts at this stage, as we cannot quantify the potential impact, but expect the news to weigh upon the shares.
25 Aug 17
Trading statement lowers guidance
Augean’s half-year trading update has highlighted a challenging contract issue, which is reducing group profitability and weighing on the company’s outlook. The problem, in the recently acquired Colt business, has resulted in a cut to our PBT forecasts for FY17 and FY18 of 10% and 13% respectively. Furthermore, we reduce our fair value per share to 67p from 80p. Management is taking decisive steps to offset the problem by instigating a £2m cost reduction programme. Despite our profit forecast reduction and the risk of further negative newsflow as contract negotiations near completion in September, we take some comfort from the fact that, despite Augean’s challenges, both our forecasts and management guidance still imply a y-o-y increase in profit before tax.
27 Jul 17
N+1 Singer - Nuclear options - Significant long-term opportunities for UK companies
UK nuclear represents a huge and complex market offering significant long-term opportunities. New build nuclear is required to help meet rising UK power generation needs and replace generation capacity which is nearing end of life. Decommissioning is essential to clean up the UK’s legacy nuclear sites safely and securely, prioritising areas where deteriorating buildings present an unacceptable risk. The total budget for nuclear is estimated at c.£301bn, with a significant proportion of this spend expected to be with UK companies. The contracting opportunities are not without risks and uncertainties. However many companies are already generating revenues and profits from UK nuclear contracts, including a number from our small and mid cap universe. We expect these contributions to become more material over time, and for the experience gained in the UK market to leave companies well-positioned to pursue nuclear opportunities overseas. Our top picks are Severfield (Buy) and Augean (Corporate), but we are also positive on Redhall (Non-Rated).
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12 Apr 17
N+1 Singer - Morning Song 12-04-2017
Futura Medical (FUM LN) Multiple licensing discussions underway | Low & Bonar (LWB LN) Solid Q1, trading in line | Nuclear options Significant long-term opportunities for UK companies | RhythmOne (RTHM LN) Trading update – profit and cash ahead | Uncovered Gems - Speed Dating Lunch A Famous Five for the future?
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12 Apr 17
Overall growth but little market recognition
For a company that reported double-digit EBITDA and operating cash flow growth for FY16, Augean continues to confound our analysis by trading on a low P/E multiple and well below our fundamental fair value. Given its excellent market position and sustainable competitive advantage through ownership of scarce hazardous landfill assets, we believe the stock should trade well above current levels. Granted, the company had one or two negative items at the full year, most notably the East Kent impairment, but cash conversion at 95% allowing for growth capex and a 50% increase in dividends is an attractive earnings story which is supported by our discounted cash flow valuation of 80p/share.
31 Mar 17
N+1 Singer - Augean - 2016 PBT in line with consensus, net debt better
Augean has confirmed that 2016 underlying PBT was in line with consensus market expectations of c.£7.1m. Meanwhile year end net debt was £2.3m better than expected at £10.8m. This represents strong year on year growth, albeit below our previous top of the range PBT forecast of £7.5m due to a slower than expected start from the recent acquisition, Colt. We have reduced our 2016 PBT forecast by 5% to £7.1m in line with consensus, while also reflecting the better than expected net debt position. Our 2017 PBT forecast is unchanged, as lower assumptions for Colt have net off against stronger than expected momentum from Energy & Construction. Augean has had an encouraging start to 2017, with good momentum across its portfolio of businesses. We remain positive on prospects for the group, which we forecast to continue to deliver double digit earnings growth, yet trades on single digit multiples.
23 Jan 17
Small Cap Breakfast
Jackpotjoy — Prospectus now approved by the FCA. Admission to Official List expected 25 January. Eco (Atlantic) Oil & Gas—TSX-V listed oil and gas exploration has announced its intention to float on AIM. Assets in Guyana and Namibia. Proposed £2m-£3m fundraise. Diversified Gas & Oil—According to LSE website first day of trading on AIM now expected for 30 January.
AUG EEQP APH GAMA FLO LWRF BLV SFE AEO
23 Jan 17
N+1 Singer - Augean - New FD announced
Augean has announced the appointment of Mark Fryer as Group FD, to replace departing FD, Richard Laker. Mark was previously FD of Dialight, with more recent roles as interim CFO of private equity owned businesses. Mark will join Augean on 14th December, with Richard stepping down on the same date. Augean remains on attractive valuation multiples despite recent positive share price momentum, with a strong track record of double digit EPS growth which we expect to continue over our forecast horizon. We anticipate the next news flow to be a year end trading update in January 2017.
06 Dec 16
Decommissioning the doubters
Augean has announced a partnership with the Port of Dundee to treat hazardous waste arising from the growing market for oil and gas platform decommissioning. While we only increase our 2018 group operating profit forecasts by 2.5% to reflect the new venture, we are positive about the scale of the opportunity for energy infrastructure decommissioning (decom) as North Sea production assets reach the end of their lives. Augean’s unique ability to offer integrated hazardous waste treatment and disposal places it in a strong position to benefit from this market as it develops in the years and decades ahead.
30 Nov 16
N+1 Singer - Augean - Decommissioning waste management facility at Dundee
Augean North Sea Services (ANSS) has entered a partnership with Forth Ports Dundee, to open a specialist decommissioning waste management facility. The facility will open in early 2017 and will complement Forth Ports’ own investment in quayside infrastructure to service the North Sea oil & gas decommissioning sector. The combined facilities will enable the Port of Dundee to offer integrated waste management services and onshore disposal for large scale decommissioning in Scotland. While the opening of this facility will enhance Augean’s position in the emerging North Sea decommissioning market, we do not expect it to have an impact on near-term forecasts.
14 Nov 16
Inspiration Healthcare Group (IHC.L) | Augean (AUG.L) | Venture Life Group (VLG.L) | Sterling Energy (SEY.L) | Directa Plus (DCTA.L) | Metals Exploration (MTL.L) | Orchard Funding Group (ORCH.L) | Castleton Technology (CTP.L) | AFH Financial (AFHP.L) | Akers Biosciences (AKR.L)
AUG IHC VLG SEY DCTA MTL ORCH CTP AFHP
14 Nov 16
Management ensures capital not wasted
Augean’s high margins and earnings growth offer attractive returns for equity holders in an uncertain macroeconomic environment. Bolstered by the accretive Colt acquisition and benefiting from new contract wins, we increase our FY17 group EBITDA forecast for Augean by 16%. Given its specialist service offering, Augean is highly profitable and typically carries a low level of debt, so continually has to weigh capital allocation versus shareholder returns. We were therefore pleased that management paid a very sensible EV/EBITDA multiple of 6.6x for Colt, a Hull-based specialist waste services provider.
08 Aug 16
Re-run of the value screen and 10 focus stocks
We have completed another periodic refresh of our value screen, first established in our inaugural quant/screening note of 26 May 2015. As usual the screen selected the 25 stocks exhibiting the most extreme value characteristics (based on 2016 consensus P/E and latest price to tangible book ratio) from our universe, and we have chosen 10 stocks to focus on. Since inception last year the screen has outperformed the main small-cap and micro-cap indices (by about 8pp and 3pp respectively) and has proved to be pleasingly defensive.
AUG ABBY BILN CARR CGS GOAL BOOT LVD RAV VTU
09 Jun 16
AGM update in line; strong forecast growth and attractive valuation
Augean has given a brief update to accompany its AGM, confirming that trading in the year to date remains in line with management expectations. Our unchanged forecasts show an EPS CAGR of 17% over the next three years, reflecting good organic growth plus last month’s earnings enhancing acquisition of industrial services business, Colt. While the market responded positively to the deal, the shares remain on modest valuation multiples offering an attractive entry point for investment.
02 Jun 16
Augean (AUG LN) AGM update in line; strong forecast growth and attractive valuation | Eckoh (ECK LN) 2 US contract wins plus renewed agreement with West | OMG (OMG LN) Vicon stays one step ahead | PureTech (PRTC LN) Disappointing data from Tal Medical | Vp (VP/ LN) Anticipating a positive conclusion to a busy year
AUG OMG ECK
02 Jun 16
Earnings enhancing acquisition of Colt
Augean has announced the acquisition of Colt, a specialist UK industrial services business which will be integrated with the Industry & Infrastructure business unit. The acquisition is expected to provide good opportunities for cross-selling, as Colt has framework agreements with tier 1 customers providing on-site industrial services and waste management services which are complementary to those offered by Augean. The business is well-invested and well-run, with management and all 75 employees joining Augean. Colt has been acquired for £9.2m net of cash acquired (plus potential earn-outs of up to £4.75m), funded from Augean’s existing debt facilities. We have increased our adjusted PBT and EPS by 9% for 2016 and 14% for 2017 and 2018, which results in an EPS CAGR of 17% over the next three years. Our forecasts put the shares on attractive valuation multiples of 4.4x EV/EBITDA and 8.5x P/E for 2016.
19 May 16
Increased revenue visibility from material APCR contract wins
Augean has been awarded material new contracts for treatment and disposal of air pollution control residues (APCR) from energy from waste plants. These fully underpin our 15% pa growth forecasts for this revenue stream for the next two years, which in turn represent c.15% of group sales in 2016 and 2017 and a higher proportion of group profits. The awards also help advance management’s strategic aim of expanding contracted revenues in growth areas of specialist hazardous waste services, increasing revenue visibility and providing the opportunity to further develop services to these markets. Augean has good momentum and is trading on very attractive single digit EV/EBITDA and P/E multiples.
20 Apr 16
Positive dividend surprise a sign of confidence
Despite the challenging trading conditions affecting some of the divisions, the portfolio approach allowed all the group financial metrics to show double-digit growth. Good cash generation gives the group strategic options and has allowed a positive dividend surprise (+30%) reflecting the board’s confidence in Augean’s long-term prospects.
08 Apr 16
Good 2015 growth, reassuring trading in 2016
Augean reported double digit growth in sales, PBT and EPS for 2015, in line with our forecasts, along with stronger than expected DPS. Sales grew in four out of its five divisions, as did profitability. The group also achieved good contract wins with high value customers, improving revenue visibility and providing opportunities to sell further services. Trading in 2016 to date remains in line with market forecasts. This is despite the uncertainty regarding the potential impact of updated landfill tax on landfill volumes, with construction soils received to date in line with management expectations. Our PBT and EPS forecasts are almost unchanged (12% CAGR), and we have increased our DPS estimates. The group has good momentum and is trading on very attractive single digit EV/EBITDA and P/E multiples.
22 Mar 16
Site purchase to support ANSS contract
Augean has spent £0.5m on a new site in Great Yarmouth to support the Augean North Sea Services (ANSS) contract win announced in its January trading update. The contract is for production waste management and onshore industrial services for a major oil & gas operator, and hence represents further progress in broadening out Augean’s North Sea services beyond those related to the tough exploration and drilling market. Longer term this site should open up opportunities for further contracts in the southern North Sea, complementing the services Augean provides to the northern and central North Sea from Aberdeen. We have increased our forecasts for capex and hence net debt by £0.5m pa, but the impact on the P&L is too small to register. The shares are trading on very undemanding multiples, a 2016 EV/EBITDA of 3.6x and P/E of 7.8x.
23 Feb 16
Augean (AUG LN) Site purchase to support ANSS contract | Croda International (CRDA LN) Impressive FY results, 100p special dividend confirmed | Dotdigital Group (DOTD LN) Matching ambition with delivery | Genus (GNS LN) H1’s: strong PIC performance but ABS impacted by weak dairy trends | Oxford BioMedica (OXB LN) Proposed £8.1m placing provides cash resources into H2 2016 | Spectris (SXS LN) Bolt-on acquisition of CAS Clean Air Service
AUG DOTD GNS SXS OXB CRDA
23 Feb 16
Resilience against a challenging background
The strategy of making Augean a more resilient and sustainable business is clearly working with the update (25 January) suggesting trading remains in line with expectations. Given the exposure to the oil and gas market, this is a robust performance and reflects a management team on the front foot. With the share price drifting to the bottom of our valuation range (49-77p), nervousness over recent oil price weakness seems overdone.
01 Feb 16
2015 in line; good momentum but risk highlighted
Augean’s year end update confirmed 2015 adjusted PBT in line with expectations, while net debt was lower than we had forecast. The group has entered 2016 with positive momentum, despite a challenging backdrop in some of its markets. Taking the gloss off, management has highlighted that updated guidance on landfill tax could potentially reduce volumes of brownfield construction waste into landfill, although the impact is difficult to estimate at this early stage. We have not changed our P&L assumptions, which already assume annual decreases in hazardous landfill, but this market will require close scrutiny over the coming months. The shares are trading on undemanding multiples, a 2016 EV/EBITDA of 4.3x and P/E of 9.3x.
25 Jan 16
Value screen refresh with new focus stocks
We have re-run our value basket, first established in our inaugural quant/screening research note of 26 May last year. As previously the screen produces a basket of 25 value stocks, and we have selected 10 stocks we know well to focus on. To date the value basket has performed exactly in line with the microcap index and outperformed the smallcap index by about 9pp. Our original 10 focus stocks outperformed the basket by 2.2pp. We will continue to monitor performance of the basket, and refresh it again in 3-4 months’ time.
AUG AVG CGS GOAL HAT BOOT LVD MMH RAV SGI
15 Jan 16
Dialight (DIA LN) Trading update – underlying in line | Entertainment One Ltd (ETO LN) Canadian Pensions joins the board | Small-cap quantitative research Value screen refresh with new focus stocks | T. Clarke (CTO LN) Encouraging FY update, cash ahead of expectations
AUG DIA ETO AVG CGS GOAL HAT BOOT LVD MMH RAV SGI CTO
15 Jan 16
Portfolio approach paying dividends
A strong first-half performance gives confidence that the group can deliver the target of double-digit growth in profit before tax in 2015. The portfolio approach was clearly beneficial and led to an improvement in ROCE and strong cash flow. This gives flexibility going forward to supplement organic growth with acquisitions and to enhance potential returns.
02 Oct 15
Strong H1 progress, reiterating FY15 expectations
Augean reported strong progress from its portfolio of businesses in H1 15, despite weakness and volatility in some of its markets. Outperformance from Energy & Construction and Augean North Sea Services (ANSS) offset weaker performances from Industry & Infrastructure and Augean Integrated Services (AIS), while RWS was in line. Management remains confident of delivering forecast PBT growth and our estimates are unchanged, putting the shares on a c.25% P/E discount to the market.
22 Sep 15
Strong H1 performance, in line with expectations
Augean has given a good period end trading update, guiding to a strong H1 2015 performance with underlying PBT in line with expectations. Of its five divisions, one beat management’s expectations, offsetting another which had a weaker H1, while the other three performed in line. Notably it was the North Sea Service business which was the strongest performer (despite the volatile industry backdrop) due to its widening service offering, while new contract wins bode well for H2. We have made no changes to our forecasts, which show double digit EPS growth. This puts the shares on an undemanding valuation, with a P/E which is c.25% lower than the UK market.
21 Jul 15
AMINO TECHNOLOGIES (AMO LN) Strong interims and transformative acquisition | AUGEAN (AUG LN) Strong H1 performance, in line with expectations | CARADOR INCOME FUND PLC (CIFU LN) NAV -0.4% in June, 2.5c dividend declared as expected | CELLO GROUP (CLL LN) On track | CRODA INTERNATIONAL PLC (CRDA LN) Confident interims confirm on track for a return to growth | MOBILE STREAMS (MOS LN) FY’15 profits and cash in-line | RENOLD (RNO LN) Q1 trading a little disappointing | SCAPA GROUP PLC (SCPA LN) Trading in line; Swiss facility to close | VICTREX (VCT LN) Solid performance despite Invibio underperformance, small acquisition
AUG AMO CLL MOS RNO SCPA VCT CRDA CIFU
21 Jul 15
Trading in line with expectations
Augean has provided a solid update to accompany its AGM, confirming strong trading in the year to date, in line with management expectations for the year. It is not yet clear whether volatility in the oil price will disrupt Augean’s North Sea Services in H2, which we pre-emptively built into our forecasts in January as a precaution. However the group’s performance so far bodes well for progress in the year as a whole. Our forecasts show adjusted EPS growth of 11% for the year despite our cautious assumptions, which puts the shares on a P/E of 11.8x, c.30% below the UK market on c.16.7x.
04 Jun 15