US Edition Shanks
98.2p +4.2
Questor says BUY
This sentiment is still true today, with the Yorkshire-inspired "where there's much, there's brass" being an updated version of the adage.
Shanks makes its money from muck – and the amount produced in its markets is about to increase. As economic activity gathers pace, the amount of waste produced by industry rises.
On Friday last week, Goldman Sachs added the shares to its conviction buy list and issued a new target of 170p, up from 153p. Goldmans argued that the group was highly geared to a pick up in industrial activity.
The broker calculated the company's five-year average earnings multiple, which came in at 15.5 times. The shares are now trading on a March 2010 earnings multiple of 12 times, so the shares are still at a discount to their historical rating.
Questor also suspects that consensus earnings forecast are too low – so there is a good chance of upgrades in the future.
Although the group generates about 85pc of its business in the Benelux region of Europe, it has won some significant new contracts over the past few months here in the UK.
In the UK, it recently reached financial close on a contract with Cumbria County Council for a 25-year public-private partnership deal, which could be worth £720m over the contract lifetime.
The council has chosen Shanks to develop and manage new waste and recycling facilities along with Cumbria's existing household waste recycling centres. Shanks proposed to reduce the amount of waste to landfill by 80pc by development and improvements to existing facilities.
In June the group also won a three-year contract with Severnside Recycling to dispose of all of Marks & Spencer's waste.
In the UK, opportunities will continue, as landfill taxes are set to rise. They will increase to £56 per tonne in 2011, £64 in 2012 and £72 in 2013. The Government has been clear that disposal by landfill is now to be a last resort.
A recent report by the environmental charity Green Alliance for Defra noted that, despite an increase in recycling, 54pc of waste generated in the UK still goes into landfill. It also pointed out that in countries where landfill taxes had been increased, such as Austria, there had been a significant switch to environmentally damaging incineration, which it urged the Government is keen to avoid. This means increased regulation is likely – and this offers Shanks an opportunity.
The rights issue in May brought the group's balance sheet into a strong position and the company plans to fund any future growth opportunities through cashflow and funds from disposals.
This is reassuring, although should a good opportunity arise, Questor thinks that debt funding is still an option on the table. The company has not publicly stated which of its assets could be sold.
Questor recommended taking a position at 69p on April 9 this year – and then advised taking up the rights issue one month later. The theoretical ex-rights price was 72.9p and the shares are now 35pc ahead.
Despite recent gains, the shares are still yielding 3.2pc and the stance remains buy.