The Investment Column: Shanks thrives on rubbish

Click to follow
The Independent Online
IT MAY be a cliche, but Shanks & McEwan is proving that it can make a handy amount of brass out of handling muck. In the past year, the grubby business of running landfill sites and burning BSE-ridden cows helped push up underlying profits for the year to March by 13 per cent to pounds 25.4m.

There are two factors behind Shanks' success. First, the demand for landfill sites, combined with increasing restrictions on the creation of new ones, means that space is at a premium. Shanks has 125 million cubic metres of free space, two thirds of which already has planning permission.

Second, Shanks' Rechem incineration business is running at full tilt after winning a three-year contract to burn bonemeal made from slaughtered BSE cattle. Profits at the unit almost doubled to pounds 1.75m, and are set to rise further as Shanks pushes through efficiency improvements. The government's enthusiasm for incineration as a cleaner way of disposing of waste, combined with a reluctance to allow new incinerators to be built, means that demand should be healthy even once the contract ends.

Looking ahead, using the methane gas thrown off by landfill sites to generate electricity is a growing business - it generated "tens of millions" of pounds of revenues last year.

All this adds up to encouraging growth prospects, and upgraded profit forecasts mean the shares - up 12.5p to 197.5p yesterday - now trade on a forward multiple of about 19. Even though they've doubled in the past year, the shares are still good value.