Augean: Interims Reflect Year-On-Year Progress

Augean’s (AUG.L) interims have shown that the strategy to develop new markets and drive operational performance is reaping initial benefits but is by no means complete. With the commencement of Low Level Waste (LLW) deliveries, the creation of Augean North Sea Services (ANSS), the agreement to operate high temperature incinerator and with mineral extraction starting at Cooks Hole, Augean is making strides in its new strategic markets. While economic concerns remain in traditional markets, market share gains and a sustained operational improvement programme are seeing some initial benefits, although focus remains firmly on improving utilisation.


Interims reflect year-on-year progress
The interim results highlight the nascent impact of the developing strategic markets, combined with an increase in landfill activities and a challenging waste transfer market. Revenue including landfill tax increased to £20.0m (H111: £19.4m), while net revenue increased to £17.5m (H111: £16.0m). Adjusted PBT increased to £0.9m (H111: loss £0.1m), while EBITDA fell to £3.0m (H111: £3.5m). Following the investment in new business streams, net debt rose to £6.6m (H111: £3.5m).

Strategic developments continue apace
The period saw significant moves forward in the strategic markets, with initial LLW volumes, mineral extraction, an HTI-operating agreement and the acquisition of a majority stake in the newly-created ANSS subsidiary. Coupled with this, although the waste transfer market remained challenging, the focus on price and cost control across the group allowed improvements in gross margin and as utilisation increases, we anticipate further progress here. Separately, CEO Paul Blackler announced his intention to step down through an orderly transition to pursue another opportunity, with the search for a replacement underway.

Valuation: Long-term value opportunity remains
We continue to view Augean as a substantial long-term value opportunity with substantial upside from the new strategic markets. While exact timing of the pace of growth in these markets is subject to a range of factors, the scale provides a counterbalance for the longer-term investor. Given progress to date, our base case DCF-based fair value is 75.6p, although a more bearish view of the rate of operational progress yields a fair value of 45.5p per share.

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