Augean — H220 momentum from EfW growth to continue

Augean (LN: AUG)

Last close As at 04/11/2024

248.50

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Research: Industrials

Augean — H220 momentum from EfW growth to continue

Augean has proven to be resilient throughout the pandemic. In particular, the growth in processing incinerator ash residues from energy from waste (EfW) facilities continues unabated and additional new contract wins should drive improved returns in FY21. Management expects FY20 adjusted PBT to be slightly ahead of last year and we have marginally reduced our FY20 adjusted PBT and EPS estimates by 1%. Our FY21 estimates are maintained. Cash flow has been stronger than we expected, underpinning the indication that dividends should resume in FY21.

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Industrials

Augean

H220 momentum from EfW growth to continue

FY20 closing update

Industrial support services

18 January 2021

Price

187.5p

Market cap

£196m

Net cash (£m) at 31 December 2020

6.4

Shares in issue

104.5m

Free float

83%

Code

AUG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(11.8)

(3.9)

(11.6)

Rel (local)

(14.8)

(16.9)

(1.5)

52-week high/low

225.00p

112.00p

Business description

Augean is a leading UK-based specialist waste management business. The business operates via two divisions: Treatment & Disposal and North Sea Services.

Next events

FY20 results

March 2021

Analyst

Andy Chambers

+44 (0)20 3681 2525

Augean is a research client of Edison Investment Research Limited

Augean has proven to be resilient throughout the pandemic. In particular, the growth in processing incinerator ash residues from energy from waste (EfW) facilities continues unabated and additional new contract wins should drive improved returns in FY21. Management expects FY20 adjusted PBT to be slightly ahead of last year and we have marginally reduced our FY20 adjusted PBT and EPS estimates by 1%. Our FY21 estimates are maintained. Cash flow has been stronger than we expected, underpinning the indication that dividends should resume in FY21.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/18

79.7

11.4

9.1

0.0

20.6

0.0

12/19

107.1

19.2

21.0

0.0

8.9

0.0

12/20e

93.5

19.6

15.2

0.0

12.3

0.0

12/21e

100.0

21.7

17.0

4.0

11.0

2.1

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

FY20: A year of two halves

The effect of COVID-19 was felt by the waste treatment operations in H120 as some waste flows were temporarily curtailed, with a recovery in volumes in H220. The EfW activity continued to see strong growth throughout the year. The North Sea activities were supported by the end of a decommissioning contract in H120 but subsequently succumbed to the weaker activity levels in the oil market. Management has impaired the North Sea assets by £3m as it adjusts to the lower market levels and this will be an exceptional charge in FY20. The adjusted PBT is expected by management to be at least in line with FY19. Cash performance was better than expected, with £6.4m FY20 net cash benefiting from the £3.5m VAT payment deferral due to be paid in March 2021.

Further positive developments in EfW

Since the start of 2020, the company has received six contracts or commitments for incremental EfW ash waste treatment from operators. Four are existing facilities and two are proposed new incinerators and should add £6m to annual revenues when fully operational. Augean has also recently received a revised Environmental Permit for its Port Clarence site that included the grant of a recovery (R) code for specific waste. One of these includes treated EfW ash, which will allow Augean to extend the number of facilities it can service by offering new waste recovery options on a selective basis to customers who desire an R code.

Valuation: Expected return to dividend list

The HMRC issues now appear to be a possible benefit if appeals are successful, which may augment sustainable organic growth driven by the incinerator ash activities. The FY21 P/E of 11.0x appears undemanding. In addition, management has indicated that it expects to resume paying dividends in 2021 and we have included a four-times covered payment, although this could be conservative.

Earnings revisions

The estimates on our income statement remain broadly unchanged, although we have slightly increased our interest charge in FY20, which reduces our adjusted PBT and EPS by 1%. FY21 is unchanged. The major change to the balance sheet estimates comes from a better cash flow than expected, aided by the VAT payment deferral until March 2021. FY20 net cash is indicated by management to be £6.4m, some £2.9m better than we had previously estimated. Our FY21 net cash expectation is slightly reduced, largely due to our assumption that an interim dividend cash out flow should resume in H221.

Exhibit 1: Augean estimate revisions

Adjusted EPS (p)

Adjusted PBT (£m)

EBITDA (£m)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2020e

15.37

15.21

-1

19.8

19.6

-1

29.9

29.9

0

2021e

17.00

17.00

0

21.7

21.7

0

32.1

32.1

0

Source: Edison Investment Research

Exhibit 2: Financial summary

£'000

2018

2019

2020e

2021e

31-December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

79,749

107,137

93,453

99,999

Cost of Sales

(67,269)

(73,669)

(64,304)

(65,767)

Gross Profit

12,480

33,468

29,149

34,232

EBITDA

 

 

18,944

28,848

29,868

32,071

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

12,244

19,948

20,862

22,522

Intangible Amortisation

(58)

(39)

(22)

(22)

Exceptionals

(322)

(26,843)

(2,500)

0

Share Based Payments

(523)

(7,693)

0

0

Operating Profit

11,341

(14,627)

18,340

22,500

Associated company

0

0

0

0

Exceptionals

0

0

0

0

Net Interest

(748)

(697)

(1,291)

(777)

Profit Before Tax (norm)

 

 

11,438

19,212

19,549

21,723

Profit Before Tax (IFRS)

 

 

10,593

(15,324)

17,049

21,723

Tax

(2,043)

2,568

(3,609)

(3,910)

Profit After Tax (norm)

9,453

21,819

15,940

17,813

Profit After Tax (IFRS)

8,550

(12,756)

13,440

17,813

Average Number of Shares Outstanding (m)

103.4

104.0

104.8

104.8

EPS - normalised (p)

 

 

9.14

20.98

15.21

17.00

EPS - normalised and fully diluted (p)

 

9.14

20.98

15.21

17.00

EPS - (IFRS) (p)

 

 

9.61

(12.26)

12.83

17.00

Dividend per share (p)

0.00

0.00

0.00

4.00

Gross Margin (%)

15.6

31.2

31.2

34.2

EBITDA Margin (%)

23.8

26.9

32.0

32.1

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

15.4

18.6

22.3

22.5

BALANCE SHEET

Fixed Assets

 

 

61,977

62,461

56,793

53,402

Intangible Assets

19,823

19,802

19,810

19,818

Tangible Assets

40,373

38,309

32,483

29,234

Investments & Other

1,781

4,350

4,500

4,350

Current Assets

 

 

33,371

62,090

50,797

66,841

Stocks

277

302

235

245

Debtors

18,628

40,200

34,300

36,702

Cash

11,162

21,588

16,263

29,894

Other

3,304

0

0

0

Current Liabilities

 

 

(23,585)

(40,017)

(30,019)

(27,897)

Creditors

(23,585)

(33,350)

(30,019)

(27,897)

Short term borrowings

0

(6,667)

0

0

Long Term Liabilities

 

 

(11,463)

(39,469)

(17,962)

(17,682)

Long term borrowings

(2,922)

(28,123)

(10,000)

(10,000)

Other long term liabilities

(8,541)

(11,346)

(7,962)

(7,682)

Net Assets

 

 

60,300

45,065

59,609

74,665

CASH FLOW

Operating Cash Flow

 

 

17,413

(16,215)

32,219

27,305

Net Interest

(360)

(597)

(1,291)

(777)

Tax

(1,063)

(820)

(3,754)

(3,810)

Capex

(3,413)

(5,841)

(5,110)

(6,030)

Acquisitions/disposals

6,212

3,350

(1,100)

(300)

Financing

250

(1,319)

(1,500)

(1,500)

Dividends

0

0

0

(1,257)

Net Cash Flow

19,039

(21,442)

19,465

13,631

Opening net debt/(cash)

 

 

10,799

(8,240)

13,202

(6,263)

HP finance leases initiated

0

0

0

0

Other

0

0

0

0

Closing net debt/(cash)

 

 

(8,240)

13,202

(6,263)

(19,894)

Source: Company data, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Augean and prepared and issued by Edison, in consideration of a fee payable by Augean. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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London +44 (0)20 3077 5700

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New York +1 646 653 7026

1185 Avenue of the Americas

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United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Augean and prepared and issued by Edison, in consideration of a fee payable by Augean. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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