Steady as she goes
Shanks Group (LONDON:SKS) reported its pre-close trading and will report its full set of results on 21 May. Group underlying trading is broadly in line, with weak demand for Solid Recovered Fuel (SRF) in Belgium offset by further support for recycling activities (via incineration tax). We continue to highlight Shanks Group’s strong position to take advantage of an economic recovery in the Benelux region and significant upside risk to our valuation if such recovery were to materialise.
Trading in line with expectations
Shanks reported its pre-close trading statement for FY15 and is due to report its preliminary results on 21 May. For the group as a whole, trading is broadly in line with the company’s expectation, with a stronger H2 expected as a result of continued management efforts offsetting a challenging solid waste market. Within the core solid waste market, reduced off-take demand for SRF in Belgium has led to less profitable outlets and as a result, a £5m write-down of its Gent facility. Shanks continue to see further evidence that the €13/tonne incineration tax in the Netherlands is being passed through to waste producers, which ultimately should encourage recycling activities. Investments in Hazardous Waste business remain on track. Financially, Shanks expect to report £20m of exceptional charge in the H2 (including the £5m impairment of SRF highlighted above), with around a third of this being non-cash. Shanks anticipates net debt at March 2015 to be around £170m, benefiting from the weaker euro.
Underlying outlook for FY16 unchanged
Shanks confirmed that apart from any impact from currency exchange rates, the board’s expectations for FY16 remain unchanged. We continue to expect to see gradual recovery in the Benelux solid waste market, which should improve the profitability of Shanks and help to re-rate the shares.
Valuation: Medium-term value
We have updated our earnings forecast, mainly to reflect the exceptional items and further weakness of the euro. Our FY15 reported PBT is 3% lower at £21.8m and EPS is 4% lower. Our revised net debt is also lower at £174m. Our updated valuation range now stands at 100-122p/share, an average of 112p/share. We highlight a longer-term store of value at Shanks and potential material upside to our valuation with further improvements in Benelux.
To Read the Entire Report Please Click on the pdf File Below