Last close As at 05/08/2026
—
— 0.00 (0.00%)
Market capitalisation
—
Research: Industrials
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).
Written by
Augean |
Improving underlying cash flow |
Trading update |
Industrial support services |
21 March 2018 |
Share price performance
Business description
Next events
Analyst
Augean is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||
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).
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
84.7 |
6.0 |
5.6 |
0.0 |
4.5 |
0.0 |
12/18e |
79.5 |
8.1 |
6.3 |
0.0 |
4.0 |
0.0 |
12/19e |
79.2 |
8.8 |
7.1 |
0.0 |
3.5 |
0.0 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
A tough year in FY17
While revenue rose 11% in FY17, to £84.7m (Edison FY17e £83.2m), operating profit fell to £6.4m (FY16: £7.8m). The main reasons for the decline were increased costs (put in place in H216), issues with a legacy contract at Colt, lower volumes in the soil market and exceptional costs of £8.6m (ongoing restructuring costs and an impairment charge to the carrying value of Colt of £6.3m). Given the continuing uncertainty relating to its landfill tax dispute with HMRC, Augean will not pay a dividend for FY17 (reducing cash outflow by c £1m in FY18). Capex increased to £8.5m (FY16: £8.4m). Nonetheless, end-December net debt was £10.8m, significantly below our forecast of £13.5m, and has fallen further to £8.9m (at 19 March). The lower debt figure was the result of stronger than anticipated operating cash flow (better working capital movements + lower tax and interest payments).
AIS disposal and tax update
Before the results Augean announced the disposal of Augean Integrated Services (AIS) for up to £4.1m. Given the history of losses for this division (FY17: £0.4m), its negative contribution to cash flow and the c £1m of annual capex, the disposal will have a significant beneficial impact on group cash flow. We expect Augean to take similar action with other businesses that fail to generate cash. It remains of the view that there will be no swift resolution to the dispute with HMRC. However, Augean did reveal that HMRC has advised it that its original assessment of £2.8m, relating to the February 2014 quarter, will now be revised downwards by £1.5m (53%), due to the reclassification of the tax banding for certain types of waste.
Valuation: Discount reflects tax uncertainty
We have revised our forecasts to reflect the results and the disposal. We now expect a quicker reduction in net debt (disposal of AIS/absence o70/f dividend payments/lower capex). Our DCF valuation, which excludes the impact of any settlement, indicates an underlying valuation of c 70p (c 11.3x FY18e normalised EPS). The difference in market capitalisation between the share price of 25p and the DCF valuation of 70p/share equates to c £47m and compares to the total of HMRC assessments received so far of £12m (five assessments).
Exhibit 1: Financial summary
£000s |
2017 |
2018e |
2019e |
2020e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
84,691 |
79,468 |
79,242 |
82,015 |
Cost of Sales |
(61,247) |
(54,311) |
(52,380) |
(53,595) |
||
Gross Profit |
23,444 |
25,157 |
26,862 |
28,420 |
||
EBITDA |
|
|
12,941 |
14,017 |
15,042 |
15,878 |
Operating Profit (before amort. and except & SBP.) |
7,003 |
9,189 |
9,895 |
10,514 |
||
Intangible Amortisation |
(447) |
(130) |
(100) |
(100) |
||
Exceptionals |
(8,605) |
1,300 |
0 |
0 |
||
Share Based Payments |
(194) |
(200) |
(200) |
(200) |
||
Operating Profit |
(2,243) |
10,159 |
9,595 |
10,214 |
||
Associated company |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Net Interest |
(850) |
(939) |
(926) |
(915) |
||
Profit Before Tax (norm) |
|
|
5,959 |
8,051 |
8,768 |
9,399 |
Profit Before Tax (IFRS) |
|
|
(3,093) |
9,221 |
8,668 |
9,299 |
Tax |
(401) |
(1,798) |
(1,690) |
(1,813) |
||
Profit After Tax (norm) |
5,752 |
6,453 |
7,278 |
7,786 |
||
Profit After Tax (IFRS) |
(3,494) |
7,423 |
6,978 |
7,486 |
||
Average Number of Shares Outstanding (m) |
102.8 |
102.9 |
102.9 |
102.9 |
||
EPS - normalised (p) |
|
|
5.59 |
6.27 |
7.07 |
7.56 |
EPS - normalised and fully diluted (p) |
|
5.59 |
6.27 |
7.07 |
7.56 |
|
EPS - (IFRS) (p) |
|
|
(3.40) |
7.21 |
6.78 |
7.27 |
Dividend per share (p) |
0.00 |
0.00 |
0.00 |
0.00 |
||
Gross Margin (%) |
27.7 |
31.7 |
33.9 |
34.7 |
||
EBITDA Margin (%) |
15.3 |
17.6 |
19.0 |
19.4 |
||
Operating Margin (before GW and except.) (%) |
8.3 |
11.6 |
12.5 |
12.8 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
68,001 |
65,985 |
65,838 |
65,583 |
Intangible Assets |
20,080 |
19,985 |
19,885 |
19,785 |
||
Tangible Assets |
46,678 |
44,600 |
44,453 |
44,189 |
||
Investments |
1,243 |
1,400 |
1,500 |
1,609 |
||
Current Assets |
|
|
26,589 |
35,089 |
41,761 |
50,137 |
Stocks |
440 |
390 |
376 |
385 |
||
Debtors |
19,570 |
18,363 |
18,311 |
18,952 |
||
Cash |
6,579 |
16,335 |
23,074 |
30,800 |
||
Other |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(18,989) |
(17,850) |
(17,197) |
(17,633) |
Creditors |
(18,989) |
(17,850) |
(17,197) |
(17,633) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(25,496) |
(25,496) |
(25,496) |
(25,496) |
Long term borrowings |
(17,378) |
(17,378) |
(17,378) |
(17,378) |
||
Other long term liabilities |
(8,118) |
(8,118) |
(8,118) |
(8,118) |
||
Net Assets |
|
|
50,105 |
57,728 |
64,906 |
72,591 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
10,490 |
15,130 |
14,403 |
15,500 |
Net Interest |
(429) |
(939) |
(926) |
(915) |
||
Tax |
(650) |
(1,650) |
(1,738) |
(1,759) |
||
Capex |
(8,457) |
(5,250) |
(5,000) |
(5,100) |
||
Acquisitions/disposals |
62 |
2,465 |
0 |
0 |
||
Financing |
28 |
0 |
0 |
0 |
||
Dividends |
(1,027) |
0 |
0 |
0 |
||
Net Cash Flow |
17 |
9,756 |
6,739 |
7,726 |
||
Opening net debt/(cash) |
|
|
10,816 |
10,799 |
1,043 |
(5,696) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
10,799 |
1,043 |
(5,696) |
(13,422) |
Source: Company accounts, Edison Investment Research
|
|
Future has announced the purchase of five well-known, specialist consumer titles from Haymarket Media for up to £14m, 1.2x their combined revenue for the year to June 2017. These strengthen the group’s offering in audio visual and add new verticals in sports and leisure. Management has a very good record on speedy and successful integration of consumer titles and their improved monetisation. It expects this deal to be earnings enhancing. We will update our estimates when the transaction completes in May. The share price has drifted back from recent highs and we consider that the current rating does not fully reflect the opportunity.