Despite four management upgrades to FY19 market expectations during the year, Augean succeeded in surpassing our forecasts. Underlying PBT of £19.2m was £0.8m ahead of our estimates, powered by volume growth across all business segments and margin improvement (contributing £3.1m of extra profitability). Exceptional cash payments of £44.5m made in December, including £40.4m to HMRC and £4.0m for the Long Term Incentive Plan (LTIP), meant that net debt of £13.2m was worse than forecast, although on an underlying basis it was slightly ahead of our expectation of net cash of £30m (-£13.2m + £44.5m = £31.3m). Despite the payments in FY19, the balance sheet remains robust, with an FY19 net debt/equity ratio of 27.9%.

FY19 results marked a continuation of the improvement in the profitability of the business seen in recent years, with a compound annual growth rate (CAGR) in revenue of 19% and 31% in EBITDA (2016–19). Since FY17, the return on capital employed (ROCE) has improved from 9% to 37.3% in 2019. It is also worth highlighting that net debt of £13.2m compares to net debt of £10.8m in FY17, during which period Augean settled the outstanding landfill tax liability with HM Revenue & Customs (HMRC). Having achieved a turnaround in the business, Augean is well placed, with strong market positions in its constituent businesses to achieve further growth for its shareholders. We estimate that Augean will continue to generate cash at the rate of c £1.5–2.0m per month, eliminating net debt during FY20. 

Following the FY19 results we have updated our forecasts (only small incremental changes) and valuation analysis. Based on peer group multiples we believe that Augean could be worth c 276p/share. For the purposes of our analysis we have not assumed any rebate of the landfill tax payment to HMRC (total payment worth 39p/share). Despite the recent strong share price performance, we still see potential for additional upside.