PowerHouse Energy Group (PHE); reports ongoing commercialisation of DMG® process

Growth fuels upside

Augean 18 October 2019 Update
Download PDF

Augean

Growth fuels upside

Re-introduction of estimates

Industrial support services

18 October 2019

Price

150p

Market cap

£156m

Net cash (£m) at 30 June 2019

22.8

Shares in issue

104m

Free float

84%

Code

AUG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

47.1

27.1

219.2

Rel (local)

49.2

31.6

211.7

52-week high/low

150.0p

42.5p

Business description

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

Next events

Trading update

January 2020

Analyst

Graeme Moyse

+44 (0)20 3077 5700

Augean is a research client of Edison Investment Research Limited

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.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/17

67.0

7.0

6.5

0.0

23.1

N/A

12/18

79.7

11.0

9.1

0.0

16.5

N/A

12/19e

105.1

18.4

14.9

0.0

10.1

N/A

12/20e

120.1

22.8

18.2

0.0

8.2

N/A

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

Upgrade to market expectations for FY19

Augean reported strong growth in H119 (adjusted EBITDA +71% to £14.2m) and the recent trading update (16 October) confirmed the positive momentum. Augean pointed to a 20% increase in landfill volumes and a 20% increase in landfill pricing, alongside strong performances from North Sea Services and the radioactive waste business. Management stated that adjusted PBT would be ‘materially’ ahead of prevailing market consensus prior to the release of the update (£16.5m).

Market positioning to underpin further growth

Since 2017 Augean has implemented a successful turnaround of the business reducing costs by c £6m, selling underperforming businesses and increasing prices and volumes in all its core operations. These actions have had a beneficial effect on profitability, with reported PBT increasing from under £5m in FY17 to over £18m expected in FY19. Augean is now well positioned in its three key markets of municipal ash, soil and North Sea Services and we expect these markets will be the dominant contributors to future profit growth. We note that in ash, Augean has already signed contracts with municipal incinerators that are due to start operation shortly and which Augean believes could add c £12m to PBT over the next two to three years. The dispute with HMRC over landfill taxes continues but Augean is now in a financial position, should it choose to do so (with some borrowing), to pay off the total liability, which we believe will be in the region of £53m when all assessments and penalties have been received. Payment of the HMRC liability would not only draw a line under the dispute, it would prevent further accrual of unpaid interest and allow the cost of borrowing to be offset against taxation.

Valuation: Further upside potential

Since the end of 2017 the shares have performed strongly but we believe additional share price appreciation is possible in view of the potential clarification of the HMRC liability and Augean’s future growth prospects. Our analysis, based on a range of valuation approaches, indicates a potential valuation for Augean in the range of 175p to 225p per share.

Corporate reorganisation stimulates return to growth

Management action to tackle historical challenges

We last published on Augean in March 2018 at a point when the company had embarked on a plan to transform the business. In 2017 Augean was a sprawling waste management company with a range of businesses that frequently failed to meet market expectations and in October 2017 management issued a profit warning due to a weaker trading performance, pointing to lower profitability in 2017 than 2016, and that it had reduced its outlook for 2018. In addition to these operational challenges, Augean had been served notice by the HMRC (August 2017) that it faced a substantial financial liability in relation to unpaid landfill taxes.

To tackle these challenges, Augean appointed Jim Meredith, the non-executive chairman, to the role of executive chairman (October 2017) and the company embarked upon a dual strategy of running the business for cash while dealing with the legal dispute with HMRC. Mr. Meredith has focused the management team (led on a day-to-day basis by Mark Fryer (FD) and John Rauch (COO)) on cash and ROI, allowing the position of divisional head to be eliminated. Since Mr Meredith’s appointment, Augean has sold underperforming businesses such as the East Kent Incinerator, Colt and AIS, raising c £10m and eliminating ongoing losses in the process. Augean has also reorganised the business around its operational sites and now operates via two divisions (from five previously) – Treatment & Disposal and North Sea Services. The position of divisional head has been eliminated and the workforce has been incentivised by the introduction of a bonus scheme. Annual cost reductions of £6m (versus 2017) have also been achieved (original company forecast – £4m).

Exhibit 1: Augean’s recent disposal of underperforming businesses

Date

Disposal announced

Amount

Comments

16/03/2018

Sale of East Kent High Temperature Incinerator

£3.35m

Loss making in 2017 and 2018

22/06/2018

Sale of Colt Assets to Future Industrial

Cash consideration of £1m + £1.25m for Colt property sold

Attributable loss of £0.75m in 2017

25/01/2019

Sale of AIS to Regen Devco

Initial consideration = £3m + £0.8m

AIS made a loss after tax in 2017

Source: Augean, Edison Investment Research

Successful financial turnaround

The disposals, corporate reorganisation and cost reductions have helped to significantly improve the financial performance of the company. In broad terms, in 2017 Augean reported profits of £4.6m, to which can be added £6m of annual cost savings, £4m from price increases and £4m of volume-related benefits (including those recently announced), taking profits to around the c £18.4m that we forecast for 2019. The balance sheet has been transformed over the period (see Exhibit 2) and interestingly, Augean generated almost as much in EBITDA in H119 as it did in the whole of 2017. Returns, as calculated by Augean, have also risen significantly. We forecast further growth in H219 and beyond.

Exhibit 2: Transformation of Augean’s financial performance

Period end

(net debt)/cash (£m)

Period

reported EBITDA (£m)

Period

reported basic EPS (p)

Annualised

ROCE

FY17

(10.8)

14.5

3.88

9%

H119

22.8

14.2

7.03

44%

Source: Augean, Edison Investment Research

HMRC landfill tax dispute

Although Augean has dealt successfully with the operational issues facing the business, the dispute with HMRC remains unresolved. At the H119 results Augean disclosed a potential outstanding liability of £37.3m (including interest) and has subsequently (31 July 2019) received an additional assessment of £3.1m and a penalty notice of £4.6m (2 August 2019), taking the current liability to c £45m. A further penalty notice and assessment cannot be ruled out; assuming they are of a similar scale to the recent announcements, the total liability would amount to c £53m. In reality, it is important to remember the dispute with HMRC covers three separate areas of tax, including hazardous mixed load (c £20m of the £53m), biomass ash (£15m of the £53m) and drill cuttings from the North Sea (£10m of the £53m), as well as penalties and interest payments (£8m of the £53m).

Augean continues to believe that it has a strong case and that its legal challenge will ultimately be successful. Of course, given the tripartite nature of the dispute, success in one area, but not another, cannot be ruled out. However, with a strengthened balance sheet (net cash of £22.8m at 30 June 2019) and generating cash at the rate of c £1.5–2.0m per month, Augean could, if successful in negotiating a credit facility of c £30m (c 1.2x EBITDA), pay off the liability to the HMRC, while awaiting the outcome of the tax tribunal expected next year.

The company believes that such a payment would be beneficial, as it would draw a line under the dispute, bringing to an end the rate of interest accrual on the unpaid potential liability, thus allowing Augean to reduce tax from the interest shield of the debt incurred to pay off the liability. It is also worth noting that HMRC interest is payable at the rate of 4% versus a figure of 2% for bank loans. Future cash flow could be used to pay down borrowings, recommence dividend payments, which have been suspended for the duration of the dispute, or to fund expansion (no policy yet enunciated). Augean has long argued that the UK waste management industry is undergoing a process of consolidation, leaving Augean as either predator or prey.

Augean argues that payment to HMRC would not constitute an admission of error (we understand the payment would be expensed as an exceptional item) but remains the only way of securing the benefits of the tax shield.

Trading update

The recent (16 October 2019) trading update from Augean confirmed the current strength of the business. A strong Q3 led the company to state that it expected the result for the year to 31 December 2019 to be ‘materially ahead’ of consensus figures of adjusted PBT of £16.5m. The latest upgrade is in fact the third market upgrade of 2019 and follows three upgrades in 2018, highlighting the cautious nature of management guidance. Augean pointed to a 20% increase in landfill volumes and a further 20% increase in pricing (versus 2018), increased profit from the radioactive waste business and a good performance by treatment and the North Sea Services businesses as the principal factors behind the improved outlook. Our new forecasts for 2019 and beyond reflect this latest trading update.

Longer-term business outlook

The longer-term business outlook for Augean appears encouraging, particularly in three key areas.

We expect that the primary contributor to growth will be the Energy from Waste (EfW) incinerator ash business (revenue of £7.7m in H119, +28% in H119 vs H118). In the period FY19 to FY23 we expect ash will drive over half the growth of the non-North Sea business. Augean is only one of three operators in this market (market share c 40% and win rates of 90%) and it expects the market to grow at a CAGR of 9% until 2022 (400k tonnes pa of ash contracts will come on stream Source: Tolvik). Structural market growth is expected as additional EfW plants are commissioned in order to reduce the volume of municipal solid waste going to landfill (in the absence of recycling alternatives). However, it is worth noting that in 2018 Augean managed to grow revenue by 14%, despite no new incinerators commencing operation. In fact, Augean has already signed contracts with several incinerators that are due to commence operations shortly so there is a high degree of visibility over future revenues, although any delay in commissioning these incinerators would have obvious implications for the timing of Augean’s receipt of revenues. Our forecasts assume a win rate of c 40% for the new incinerators coming on stream in the next two to three years, although the current win rate is much higher.

Construction soils remain a key input into Augean’s landfill sites. Although the market for construction waste remains flat and is linked to the market for construction (and as such can exhibit volatility), Augean was recently able to reassemble a previously successful team in this business division and construction soils played a significant role in the 39% increase in H119 treatment and disposal revenues. In the longer term, Augean expects continuing growth as a result of tighter regulation (from HMRC and the Environment Agency) on developers relating to soil disposal and the potential for soil waste from London (around one-third of the UK market) to be shipped to its Port Clarence treatment facility. Augean continues to enhance its long-term infrastructure and recently announced (18 October 2019) it has acquired an option to purchase c 90 acres of land adjacent to its East Northants Resource Management Facility (ENRMF). The acquisition of the option offers the potential to prolong the life of the site and enhance Augean’s position in the hazardous waste and soil landfill market, particularly in the resource-constrained south-east of England.

The North Sea Services business also continues to grow strongly. In H119 revenue rose to £13.7m (+43% from £9.6m in H118) and we expect further strong growth in H2 as Augean continues its work on the Curlew floating production storage and offloading (FPSO) unit, which forms part of its agreement with Shell to decommission North Sea infrastructure. Significantly, the scale of the project has increased (from £3m to £10m) as a result of a widening in the scope of the job and additional waste volumes. Augean believes that the experience gained in the Curlew project should provide it with valuable expertise in a sector that the Oil and Gas Authority estimates to be worth in the region of £58bn in total and which is expected to grow rapidly over the next 10 years (total decommissioning work of £15–20bn, of which Augean believes it will be in a position to bid for c £1bn). Market growth, allied to Augean’s strategically located decommissioning sites and position as the leading provider of waste management services to the North Sea oil and gas sector, should underpin growth forecasts.

Financial forecasts

Augean demonstrated strong growth in revenue and EBITDA in H119 and the recent trading update confirmed that Q3 has been similarly strong. We have significantly revised our forecasts compared to our last published estimates (March 2018) to reflect the cost reductions, disposals and corporate reorganisation that has taken place and the strength of current trading. We have also extended the timeframe of our projections to 2023. Our revenue forecasts include a base case and a slightly more optimistic scenario, with a higher win rate for ash bids.

Revenue: In H119, Augean reported a 40% increase in adjusted revenue versus H118. We expect strong growth in H219 boosted by continuing strong performance as detailed above. Under our base case, we expect revenue to increase at a CAGR of 14% for the period 2018–2023, while our high case forecasts a CAGR of 15%. We assume most of the growth will be generated by ash, soil and North Sea Services as outlined above. The main difference between the two forecasts is due to additional waste volumes (ash) and some small accretion in the margin.

EBITDA margin: We expect an EBITDA margin of 26% for FY19 and FY20, rising to 30% in 2023 under the base case and 31% under the high case.

Exhibit 3: Base and high case key financial indicators

(£m)

2019e

2020e

2021e

2022e

2023e

Base case

 

 

 

 

 

Revenue

105.1

120.1

132.0

141.4

151.4

EBITDA

27.1

31.9

36.1

41.3

45.6

EPS (p) (IFRS)

14.1

17.6

20.5

24.2

27.2

Net cash

30.0

52.7

79.4

109.7

143.9

High case

 

 

 

 

 

Revenue

109.8

122.1

135.6

147.0

157.5

EBITDA

27.9

33.5

39.6

44.1

48.7

EPS (p) (IFRS)

14.8

18.9

23.2

26.3

29.5

Net cash

30.7

54.0

83.0

115.9

152.5

Source: Edison Investment Research

Strong cash generation: We do not expect any further disposals in FY19 or FY20 so cash generation is likely to remain strong (c £1.5–2.0m per month) due to the improving profitability of the business, the absence of dividend payments and capex in the range of c £5–6m. We do, however, expect a cash tax payment of £3.0m in FY19 and £4.7m in FY20 (versus £0m in H119). Our forecasts do not include any landfill tax repayment to HMRC, although, as discussed, this remains a possibility.

Net cash position: At H119, Augean had a net cash position of £22.8m and given the strong cash flow that we are forecasting, we expect this to increase to c £30.0m by FY19 and c £52.7m by FY20. By 2023, we expect Augean to have accumulated a cash pile of £143.9m under the base case scenario, rising to c £152.5m in our high case. If Augean reaches a financial settlement of its dispute with the HMRC, the net cash figures would be reduced by up to a maximum of £53m.

Tax rate: We assume a tax rate of 19% for FY19, FY20 and beyond (H119: 19%).

EPS: In light of the revenue growth and stability in the operating margin and tax rate, we forecast EPS of 14.1p in FY19 and 17.6p in FY20. For the period 2018–2023, we forecast a CAGR in EPS of 27% in our base case and 29% in our high case.

DPS: We assume no dividend payments while the uncertainty surrounding the HMRC landfill tax dispute persists. In the event of an early financial settlement however, Augean possesses the financial firepower to recommence payments. For example, an FY20 DPS of 10p a share would represent a pay-out ratio of 53% of FY20 EPS.

Valuation

To provide an indicative valuation guide for Augean we have considered peer multiples and PEG ratios for both the base case and the high case scenario. In the context of the valuation analysis it is important to remember that Augean continues to face the prospect of the payment of back taxes and penalties relating to the landfill tax liability to HMRC. Assuming full pay back of £53m, this is equivalent to c 51p/share.

Exhibit 4: Augean peer group comparable valuation

Name

Price (local)

Market cap (local, m)

EV/EBITDA (x) FY1

EV/EBITDA (x)
FY2

P/E (x)
FY1

P/E (x)
FY2

Dividend yield (%) FY1

Dividend yield (%) FY2

Renewi

32

250

5.3

4.8

8.2

5.8

5.3

5.3

Veolia Environnement

23

13,271

6.3

6.1

17.8

16.4

4.3

4.6

Suez

14

8,463

5.8

5.7

22.4

20.8

4.9

4.9

Clean Harbors

77

4,278

9.9

9.4

37.6

32.4

0.0

0.0

Average

 

 

6.8

6.5

21.5

18.5

3.6

3.7

Source: Refinitiv. Note: Prices as at 16 October 2019.

Applying the peer group average EV/EBITDA multiples of 6.8x and 6.5x to FY19 and FY20 forecasts would indicate a valuation range of 208p to 250p (average 229p) before the impact of the HMRC repayment under the base case. Simply subtracting 51p from this total would reduce the average valuation to 178p. Applying the peer group average EV/EBITDA multiples to the high case profile increases the average valuation to 236p before the landfill tax repayment and 185p after repayment. If our forecasts are met, Augean also offers significant earnings growth potential; therefore, it is also worth considering PEG ratios. Placing Augean on a PEG ratio of 1.0x would yield a valuation of 223p (base case) and 242p (high case). By way of comparison, we calculate that the FTSE All-Share Index is trading on a multiple of just under 1.0x, while the Support Services sector is trading on a multiple of c 1.5x.

The table below shows illustrative valuations struck before and after the payment of the HMRC tax liability with most approaches showing a valuation in the broad 175–225p range. By way of illustration, at a price of 176p/share Augean would be trading on an FY20 EV/EBITDA multiple of 5.7x and 6.5x at 200p/share (in line with the peer group averages for FY2 as shown in Exhibit 4). In the event of a takeover a change of control premium might be expected, which could add 20–30% to the totals. To put this into context, a 20% premium would represent c 30p/share at current levels, equivalent to c £31.2m, or 7.8x Augean’s central costs of £4m.

Exhibit 5: Augean illustrative valuations (p/share)

EV/EBITDA

FY1

EV/EBITDA

FY2

EV/EBITDA

Average

PEG

EV/EBITDA + PEG

Average

HMRC

liability

Post HMRC payment

valuation

Base

207

250

229

223

226

(51)

175

High

208

263

236

242

239

(51)

188

Source: Edison Investment Research

Exhibit 6: Financial summary

£'000

2017

2018

2019e

2020e

2021e

2022e

2023e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

67,036

79,749

105,134

120,073

132,040

141,412

151,442

Cost of Sales

(58,810)

(67,269)

(72,734)

(85,948)

(94,727)

(98,860)

(104,538)

Gross Profit

8,226

12,480

32,400

34,125

37,313

42,551

46,905

EBITDA

 

 

14,005

19,276

27,073

31,875

36,091

41,348

45,637

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

8,067

12,244

19,607

24,015

27,728

32,525

36,346

Intangible Amortisation

(447)

(58)

0

0

0

0

0

Exceptionals

(2,021)

(322)

(238)

0

0

0

0

Share Based Payments

(194)

(523)

(600)

(600)

(600)

(600)

(600)

Operating Profit

5,405

11,341

18,769

23,415

27,128

31,925

35,746

Associated company

0

0

0

0

0

0

0

Exceptionals

0

0

0

0

0

0

0

Net Interest

(850)

(748)

(600)

(600)

(600)

(600)

(600)

Profit Before Tax (norm)

 

 

7,023

10,973

18,407

22,815

26,528

31,325

35,146

Profit Before Tax (IFRS)

 

 

4,555

10,593

18,169

22,815

26,528

31,325

35,146

Tax

(563)

(2,043)

(3,452)

(4,335)

(5,040)

(5,952)

(6,678)

Profit After Tax (norm)

6,654

9,453

15,555

19,080

22,088

25,973

29,068

Profit After Tax (IFRS)

3,992

8,550

14,717

18,480

21,488

25,373

28,468

Average Number of Shares Outstanding (m)

102.8

103.4

104.3

104.8

104.8

104.8

104.8

EPS - normalised (p)

 

 

6.5

9.1

14.9

18.2

21.1

24.8

27.7

EPS - normalised and fully diluted (p)

 

6.5

9.1

14.9

18.2

21.1

24.8

27.7

EPS - (IFRS) (p)

 

 

3.9

8.3

14.1

17.6

20.5

24.2

27.2

Dividend per share (p)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Gross Margin (%)

12.3

15.6

30.8

28.4

28.3

30.1

31.0

EBITDA Margin (%)

20.9

24.2

25.8

26.5

27.3

29.2

30.1

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

12.0

15.4

18.7

20.0

21.0

23.0

24.0

BALANCE SHEET

Fixed Assets

 

 

68,001

61,977

60,295

58,259

55,203

51,775

47,800

Intangible Assets

20,080

19,823

19,823

19,823

19,823

19,823

19,823

Tangible Assets

46,678

40,373

38,972

36,552

33,190

29,366

25,075

Investments

1,243

1,781

1,500

1,883

2,190

2,586

2,902

Current Assets

 

 

26,589

33,371

51,794

77,593

106,775

138,944

175,241

Stocks

440

277

280

316

345

359

379

Debtors

19,570

18,628

21,500

24,555

27,002

28,919

30,970

Cash

6,579

11,162

30,014

52,722

79,427

109,667

143,892

Other

0

3,304

0

0

0

0

0

Current Liabilities

 

 

(18,989)

(23,585)

(26,800)

(30,454)

(33,462)

(35,201)

(37,423)

Creditors

(18,989)

(23,585)

(26,800)

(30,454)

(33,462)

(35,201)

(37,423)

Short term borrowings

0

0

0

0

0

0

0

Long Term Liabilities

 

 

(25,496)

(11,463)

(9,571)

(10,601)

(11,631)

(12,661)

(13,691)

Long term borrowings

(17,378)

(2,922)

0

0

0

0

0

Other long term liabilities

(8,118)

(8,541)

(9,571)

(10,601)

(11,631)

(12,661)

(13,691)

Net Assets

 

 

50,105

60,300

75,717

94,797

116,885

142,858

171,927

 

 

 

CASH FLOW

 

 

 

Operating Cash Flow

 

 

10,530

17,413

31,353

32,497

36,875

41,184

46,019

Net Interest

(429)

(360)

(600)

(600)

(600)

(600)

(600)

Tax

(650)

(1,063)

(3,015)

(3,747)

(4,570)

(5,345)

(6,194)

Capex

(8,830)

(3,413)

(6,064)

(5,441)

(5,000)

(5,000)

(5,000)

Acquisitions/disposals

62

6,212

0

0

0

0

0

Financing

361

250

100

0

0

0

0

Dividends

(1,027)

0

0

0

0

0

0

Net Cash Flow

17

19,039

21,774

22,708

26,705

30,240

34,225

Opening net debt/(cash)

 

 

10,816

10,799

(8,240)

(30,014)

(52,722)

(79,427)

(109,667)

HP finance leases initiated

0

0

0

0

0

0

0

Other

0

0

0

(0)

0

0

0

Closing net debt/(cash)

 

 

10,799

(8,240)

(30,014)

(52,722)

(79,427)

(109,667)

(143,892)

Source: Augean accounts, 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

1,185 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

1,185 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

1,185 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

1,185 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

Share this with friends and colleagues