Last close As at 05/08/2026
—
— 0.00 (0.00%)
Market capitalisation
—
Research: Industrials
FY19 results were ahead of our expectations on an underlying basis and extended the recovery in profitability evident since 2017. With the financial liability to HMRC now discharged and strong growth expected in Augean’s key markets, we believe that the company is well positioned to continue to deliver returns for shareholders.
Written by
Augean |
Strong underlying performance in FY19 |
FY19 results |
Industrial support services |
28 February 2020 |
Share price performance
Business description
Next events
Analyst
Augean is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||
FY19 results were ahead of our expectations on an underlying basis and extended the recovery in profitability evident since 2017. With the financial liability to HMRC now discharged and strong growth expected in Augean’s key markets, we believe that the company is well positioned to continue to deliver returns for shareholders.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/18 |
79.7 |
11.5 |
9.1 |
0.0 |
23.6 |
N/A |
12/19 |
107.1 |
19.3 |
21.0 |
0.0 |
10.2 |
N/A |
12/20e |
120.8 |
22.8 |
17.9 |
0.0 |
12.0 |
N/A |
12/21e |
131.5 |
26.4 |
20.7 |
0.0 |
10.4 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Underlying FY19 results exceed forecasts
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%.
Extending the growth profile
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.
Valuation: Upside despite recent share price strength
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.
Focus on growth
FY19: Strong underlying results beat our forecasts
Augean’s headline figures for FY19 were distorted by two significant events that occurred during the course of the year and which were accounted for as non-underlying items, in total amounting to £34.5m (of which the settlement of landfill tax assessments with HMRC accounted for £26.2m and share-based payments a further £7.7m). The cash payments associated with these two events were £40.4m for landfill tax assessments and £4.0m for the cash cost of the LTIP (December 2019).
Exhibit 1: Augean FY19 vs FY18 – key figures
£000s |
FY18 |
FY19 |
Comments |
Revenue (excluding Landfill tax) |
75,820 |
91,526 |
Excludes landfill tax |
Adjusted operating profit |
12,186 |
19,909 |
Strong growth (£7.7m) in adjusted operating profit |
Share-based payments and exceptional items |
(845) |
(34,536) |
Charges against HMRC assessments and share-based payments |
Operating profit |
11,341 |
(14,627) |
|
Profit before tax (reported) |
10,593 |
(15,324) |
Adjusted FY19 PBT of £19.2m shown in Exhibit 2 below. |
EPS (reported basic) |
9.61 |
(12.26) |
|
Net cash/(debt) |
8,240 |
(13,202) |
FY19 struck after payments to HMRC and cash LTIP (see above) |
Source: Augean, Edison Investment Research
However, Augean's underlying results for FY19 demonstrated impressive year-on-year growth. On an adjusted basis, revenue increased by 33% to £91.5m (excluding the landfill tax), while adjusted EBITDA rose by 52% to £28.8m and adjusted PBT 68% to £19.2m. The performance exceeded our forecasts for EBITDA of £27.1m and PBT of £18.4m. Exhibit 2 shows the adjustments to PBT.
Exhibit 2: Reconciliation of headline PBT to underlying PBT
£000s |
Statutory PBT |
Share-based payments |
Non-underlying items |
Adjusted PBT |
FY19 |
(15,324) |
7,693 |
26,843 |
19,212 |
Source: Augean
The better than expected results were achieved thanks to strong sales growth across all divisions: Treatment and disposal (+24%) and North Sea Services (+61%). The T&D business was boosted by a 12% increase in residues from energy from waste (EfW) plants despite the absence of any new plants commencing operation in FY19. The business also benefited from a 46% increase in soil volumes helped by a full year from the impact of the soils sales team, which returned in FY18.
As Exhibit 3 highlights, underlying cash flow also remained strong, with FY19 net cash generation of £24.5m (FY18: £20m). Once again the headline figures were distorted by an exceptional payment of £44.5m (LTIP + HMRC payment), which led to a net cash outflow of £20m. However, financing totalling £30.5m increased the cash balance by c £10.5m (Exhibit 7). Despite the scale of the exceptional payments, the balance sheet remains strong, with net debt of £13.2m, representing a net debt/equity ratio of 27.9% and net debt/EBITDA of c 0.5x (banking covenants 2.5x).
Exhibit 3: Simplified cash flow before financing
£m |
2018 |
2019 |
EBITDA |
18.9 |
28.8 |
Net working capital |
(0.3) |
(0.5) |
Interest tax and other |
(1.4) |
(1.3) |
Net operating cash flows |
17.2 |
27.0 |
Capex |
(3.4) |
(5.8) |
Sale of businesses and assets |
6.2 |
3.3 |
Net cash generation |
20.00 |
24.5 |
Exceptional items |
(0.3) |
(44.5) |
Net cash flow |
19.70 |
(20.00) |
Source: Augean
FY19 in context: Further evidence of turnaround
The FY19 results represent only the latest instalment of an impressive turnaround in the fortunes of the business under the aegis of Jim Meredith (appointed executive chairman in October 2017), Mark Fryer (FD) and John Rauch (COO). The focus on disposal of underperforming businesses, cost control and cash management has transformed Augean’s financial profits, as shown in Exhibit 4. Notably, EBITDA in FY19 was almost double the figure for FY17.
Exhibit 4: Evidence of significant improvement in financial performance
Period end |
EBITDA |
Annualised |
|
FY17 |
(10.8) |
14.5 |
9% |
FY18 |
8.2 |
18.9 |
21.6% |
FY19 |
(13.2)* |
28.8 |
37.3% |
Source: Augean. Note: *The FY19 cash balance is struck after the payment of the landfill tax liability to HMRC of £40.4m and the cash LTIP of £4.0m.
Strategy
The strategy for the business is to eliminate net debt (£13.2m), optimise returns on capital and support the drive for growth in its key markets. As we have seen Augean made a payment of £40.4m to HMRC in 2019 for outstanding landfill tax (LFT) liabilities enabling it to prevent further accrual of interest and receive a corporation tax deduction. However, Augean continues to challenge the LFT assessments and awaits the First Tier Tax Tribunal hearing, expected no earlier than late 2020.
Outlook
We continue to take a positive view on the prospects for Augean. FY19 demonstrated good growth across all divisions and we expect that Augean will continue to grow given the strong market positions of its underlying businesses (Augean has c 40% of UK hazardous waste landfill capacity), which have demonstrated high ROCE and high EBITDA margins. In particular, we expect a strong performance from the ash business as volumes rise, boosted by EfW plants scheduled to come online during the course of the year.
Financials and valuation
Following the FY19 results we have made only small incremental refinements to our forecasts (see Exhibit 5). The only significant change relates to the cash position following the impact of the HMRC and LTIP payments. As stated above, the growth that we expect is driven largely by ash volumes from EfW plants. If all six EfW plants contracted by Augean were to commence operation in FY20 (at the start of the year), they would contribute a theoretical maximum of 60,000 tonnes to ash volumes (2019: c 210,000 tonnes of total ash volumes). In reality, the FY20 contribution is likely to be much less than that due to delays and part year operation – we assume an additional c 25,000 tonnes. We do not include any dividend payments in our forecasts and Augean has stated that it will not pay dividends while it is carrying net debt on its balance sheet. Once net debt has been eliminated, Augean may choose to revisit this decision, although it is important to stress that it has made no commitment to do so.
Exhibit 5: Changes to forecasts, FY20–23e
Revenue (£m) |
PBT* (£m) |
Net cash (£m) |
|||||||
Old |
New |
% change |
Old |
New |
% change |
Old |
New |
% change |
|
FY20e |
120.1 |
120.8 |
0.6 |
22.8 |
22.8 |
0.0 |
52.7 |
4.8 |
-90.9 |
FY21e |
132.0 |
131.5 |
-0.4 |
26.5 |
26.4 |
-0.4 |
79.4 |
27.0 |
-66.0 |
FY22e |
141.4 |
141.4 |
0.0 |
31.3 |
31.3 |
0.0 |
109.7 |
57.2 |
-47.9 |
FY23e |
151.4 |
151.6 |
0.1 |
35.1 |
35.2 |
0.3 |
143.9 |
89.7 |
-37.7 |
Source: Edison Investment Research. Note: *PBT shown is normalised.
Since we last published on the company (October 2019), Augean’s share price has risen from 150p to 215p and, driven by greater certainty surrounding the HMRC liability, the rating of the shares has also increased, from a forward P/E ratio of 10.1x in October, to 12.0x now. The shares are currently trading towards the top end of our previously identified range of 175–225p.
Following the FY19 results, we have also updated our valuation analysis to reflect market movements in peer group valuations and changes to our forecasts. We consider EV/EBITDA and P/E valuations for a small group of selected peers for FY1 and FY2, establishing peer group averages for each category and then applying the multiples to our forecasts for FY1 and FY2 for Augean. The average of our analysis indicates a value of 276p/share (an FY20e P/E of c 15.4x). The analysis takes no account of any potential rebate that might be received as a result of arbitration on the landfill tax dispute with HMRC. Although we do not expect a resolution to the dispute in 2020, it is worth remembering that the £40.4m paid by Augean amounts to c 39p/share. Even a partial rebate of the total payment could deliver an additional meaningful reward to shareholders.
Exhibit 6: Augean peer group valuation analysis
Country |
Code |
Currency |
FY1 |
Market cap |
Price |
P/E (x) |
EV/EBITDA (x) |
Dividend yield |
|||||
(local) |
FY1 |
FY2 |
FY1 |
FY2 |
FY1 |
FY2 |
|||||||
Renewi |
UK |
RWI |
p |
Mar-21 |
319 |
40 |
9.1 |
8.3 |
6.1 |
6.0 |
4.7 |
4.8 |
|
Veolia Environnement |
France |
VIE |
€ |
Dec-20 |
15,814 |
28 |
20.3 |
18.5 |
7.3 |
7.1 |
3.8 |
4.1 |
|
Suez |
France |
SEV |
€ |
Dec-20 |
9,763 |
16 |
23.7 |
20.2 |
7.6 |
7.4 |
4.2 |
4.2 |
|
Clean Harbors (CLH) |
US |
CLH |
$ |
Dec-20 |
4,725 |
85 |
37.6 |
32.3 |
10.6 |
10.1 |
n/a |
n/a |
|
Average |
22.7 |
19.8 |
7.9 |
7.7 |
4.2 |
4.4 |
|||||||
Average (excluding CLH) |
17.7 |
15.7 |
7.0 |
6.8 |
4.2 |
4.4 |
|||||||
Edison forecasts for Augean |
|||||||||||||
EPS (p/share) |
|
|
|
|
|
17.9 |
20.7 |
||||||
EBITDA (£000) |
|
|
|
|
|
33,189 |
37,228 |
||||||
DPS (p/share) |
|
|
|
|
|
N/A |
N/A |
||||||
Implied equity value excluding CLH (p/share) |
|
|
|
|
|
316 |
324 |
232 |
230 |
N/A |
N/A |
||
Average of implied values (p/share) |
276 |
||||||||||||
Source: Refinitiv, Edison Investment Research (Augean). Note: Prices as 25 February 2020.
Exhibit 7: Financial summary
£'000 |
2018 |
2019 |
2020e |
2021e |
2022e |
2023e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
79,749 |
107,137 |
120,772 |
131,530 |
141,411 |
151,590 |
Cost of Sales |
(67,269) |
(73,669) |
(85,688) |
(92,637) |
(97,558) |
(103,831) |
||
Gross Profit |
12,480 |
33,468 |
35,084 |
38,893 |
43,852 |
47,759 |
||
EBITDA |
|
|
18,944 |
28,848 |
33,189 |
37,228 |
42,150 |
46,008 |
Operating Profit (before amort. and except & SBP.) |
12,244 |
19,948 |
24,154 |
27,621 |
32,524 |
36,382 |
||
Intangible Amortisation |
(58) |
(39) |
0 |
0 |
0 |
0 |
||
Exceptionals |
(322) |
(26,843) |
0 |
0 |
0 |
0 |
||
Share Based Payments |
(523) |
(7,693) |
0 |
0 |
0 |
0 |
||
Operating Profit |
11,341 |
(14,627) |
24,154 |
27,621 |
32,524 |
36,382 |
||
Associated company |
0 |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net Interest |
(748) |
(697) |
(1,309) |
(1,209) |
(1,183) |
(1,151) |
||
Profit Before Tax (norm) |
|
|
11,496 |
19,251 |
22,845 |
26,412 |
31,342 |
35,230 |
Profit Before Tax (IFRS) |
|
|
10,593 |
(15,324) |
22,845 |
26,412 |
31,342 |
35,230 |
Tax |
(2,043) |
2,568 |
(4,112) |
(4,754) |
(5,641) |
(6,341) |
||
Profit After Tax (norm) |
9,453 |
21,819 |
18,733 |
21,658 |
25,700 |
28,889 |
||
Profit After Tax (IFRS) |
8,550 |
(12,756) |
18,733 |
21,658 |
25,700 |
28,889 |
||
Average Number of Shares Outstanding (m) |
103.4 |
104.0 |
104.8 |
104.8 |
104.8 |
104.8 |
||
EPS - normalised (p) |
|
|
9.14 |
20.98 |
17.88 |
20.67 |
24.53 |
27.57 |
EPS - normalised and fully diluted (p) |
|
9.14 |
20.98 |
17.88 |
20.67 |
24.53 |
27.57 |
|
EPS - (IFRS) (p) |
|
|
9.61 |
(12.26) |
17.88 |
20.67 |
24.53 |
27.57 |
Dividend per share (p) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Gross Margin (%) |
15.6 |
31.2 |
29.0 |
29.6 |
31.0 |
31.5 |
||
EBITDA Margin (%) |
23.8 |
26.9 |
27.5 |
28.3 |
29.8 |
30.4 |
||
Operating Margin (before GW and except.) (%) |
15.4 |
18.6 |
20.0 |
21.0 |
23.0 |
24.0 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
61,977 |
66,977 |
63,892 |
59,136 |
54,510 |
49,883 |
Intangible Assets |
19,823 |
24,318 |
24,318 |
24,318 |
24,318 |
24,318 |
||
Tangible Assets |
40,373 |
38,309 |
35,074 |
30,468 |
25,842 |
21,215 |
||
Investments & Other |
1,781 |
4,350 |
4,500 |
4,350 |
4,350 |
4,350 |
||
Current Assets |
|
|
33,371 |
62,090 |
79,263 |
106,493 |
136,712 |
172,247 |
Stocks |
277 |
302 |
338 |
362 |
378 |
400 |
||
Debtors |
18,628 |
40,200 |
46,000 |
51,000 |
51,000 |
54,000 |
||
Cash |
11,162 |
21,588 |
32,925 |
55,131 |
85,335 |
117,847 |
||
Other |
3,304 |
0 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(23,585) |
(40,017) |
(37,652) |
(40,248) |
(41,921) |
(44,270) |
Creditors |
(23,585) |
(33,350) |
(37,652) |
(40,248) |
(41,921) |
(44,270) |
||
Short term borrowings |
0 |
(6,667) |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(11,463) |
(39,469) |
(36,085) |
(35,805) |
(35,525) |
(35,245) |
Long term borrowings |
(2,922) |
(28,123) |
(28,123) |
(28,123) |
(28,123) |
(28,123) |
||
Other long term liabilities |
(8,541) |
(11,346) |
(7,962) |
(7,682) |
(7,402) |
(7,122) |
||
Net Assets |
|
|
60,300 |
49,581 |
69,418 |
89,576 |
113,776 |
142,616 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
17,413 |
(16,215) |
30,725 |
34,670 |
43,528 |
45,055 |
Net Interest |
(360) |
(597) |
(1,309) |
(1,209) |
(1,183) |
(1,151) |
||
Tax |
(1,063) |
(820) |
(4,112) |
(4,754) |
(5,641) |
(6,341) |
||
Capex |
(3,413) |
(5,841) |
(5,800) |
(5,000) |
(5,000) |
(5,000) |
||
Acquisitions/disposals |
6,212 |
3,350 |
0 |
0 |
0 |
0 |
||
Financing |
250 |
(1,319) |
(1,500) |
(1,500) |
(1,500) |
(49) |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
19,039 |
(21,442) |
18,004 |
22,206 |
30,203 |
32,513 |
||
Opening net debt/(cash) |
|
|
10,799 |
(8,240) |
13,202 |
(4,802) |
(27,008) |
(57,212) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(8,240) |
13,202 |
(4,802) |
(27,008) |
(57,212) |
(89,724) |
Source: Augean accounts, Edison Investment Research
|
|
Research: Healthcare
The last several months were eventful for VolitionRx. The publication of the first ever proof-of-concept data in haematological cancers was the R&D highlight in Q419. On the corporate front, the company has acquired Octamer, now an in-house manufacturer of a key assay component, and is rapidly developing its veterinary subsidiary in the US. From a platform perspective, VolitionRx is moving away from traditional ELISA plates to a new format immunoassay based on magnetic particles. This is expected to improve the analytical performance of VolitionRx’s Nu.Q assays in the clinical studies. Our valuation stays at $223m or $5.42/share.