The Investment Column: Rag and bone boost for Shanks
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Your support makes all the difference.After years in the dumps, Britain's waste management sector is starting to look worth digging into. Long overdue consolidation is finally happening. In August General Utilities took out Leigh Interests for pounds 116m and South West Water has bought Southern Water's waste business for pounds 11m. Waste disposal prices are starting to rise. With fixed overheads, this is boosting profits. And increasingly stringent legislation is working in the big boys' favour.
The landfill tax introduced last year is prompting companies to use specialised disposal methods which only the big players can provide. Though recycling prices have been falling, European legislation early next year will make recycling of everything from paper to steel a legal requirement.
Shanks & McEwan, the UK's second-biggest waste group, should benefit from all this. Michael Averill, chief executive at Shanks, which yesterday posted underlying profits up 10 per cent to pounds 67.6m for the half year to September, believes recycling will be a massive market. With no real competition, the group has scope to grow its recycling business, currently loss making. With gearing at 19 per cent and some 3,000 small private waste groups in the UK, Shanks is poised to make acquisitions.
Meanwhile, Shanks is the only UK group with a contract to incinerate meat and bone meal from slaughtered cows at risk of BSE. Shanks' contract is to process 45,000 tonnes in the next three years. But with a 300,000 tonne mountain of pulped cow building up, there is more work if Labour is prepared to pay. Shanks' share price, down 2.5p to 148.5p, is creeping back after hitting almost 240p in the early 1990s. On a forward p/e of 17 times, decent value, particularly given the bid whiff in the air.
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