Smaller companies: On the trail of a good tip

This week Waste Recycling Group, which collects and recycles domestic and industrial waste and operates landfill sites, presents interim results for the six months to 30 June, writes Ian Griffiths. A solid improvement is expected from a solid company with solid prospects. It is a share that has never disappointed its supporters. Although analysis of the price reveals that it has rarely yielded any spectacular short-term gains, by the same token it has proved extremely difficult to lose money on the shares. In fact, only those who have bought the shares in the last two months have seen anything like lasting losses. At the start of June the shares rose by more than 10 per cent in a few days to reach a high of 302.5p. They have since fallen back and closed on Friday at 271.5p.

This relative weakness coupled with the anticipated positive outlook from the company this week should represent an opportunity to reconsider the stock. A superficial examination might be a little off-putting. The shares stand on a multiple of around 30 times 1997 earnings, assuming the figures confirm that the company is on target for earnings per share in excess of 9p in the full year. That multiple may appear just a touch demanding but it is not necessarily a deterrent.

Those who prefer speculation to substance to underpin their investment strategy may be aware of speculation that a bid is being hatched for Waste Recycling. Both Shanks & McEwan and a US predator have been mentioned. Even without bid speculation there are still powerful arguments to consider Waste Recycling. It is a well managed business that has quickly established an impressive trading record. It has appropriate "green" credentials for those who believe that environmentally friendly stocks will prosper under Labour. It has a landfill landbank stretching 20 years forward. It has the potential to absorb a sizeable acquisition of its own. It benefits from the landfill levy, which is encouraging more recycling. These are all positive factors.

If there is a downside it is that none of these elements suggest that Waste Recycling is about to acquire the attributes of a dizzy growth stock. That said, the 20 per cent a year rise in earnings Waste Recycling has delivered is extremely respectable. That growth may be slowing but it is not evaporating. Indeed one satisfied investor said that there are some forecasts around suggesting that earnings per share in 1998 could reach 23p. Now that would be the stuff of a dizzy, high-flying, dramatic, growth stock.

That development seems unlikely without an acquisition of some proportion but is indicative of the positive sentiment that surrounds this stock.

Waste Recycling is a company that is unlikely to disappoint, which means the tantalising takeover talk is in for free.

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