Investment: Shanks is good defensive stock

SHANKS & MCEWAN is one British company that looks poised to do well in Europe no matter when the UK signs up to the euro.

The waste management group delivered a robust set of half-year results yesterday, with profits up 42 per cent to pounds 18.7m.

Much of the jump stemmed from the group's move into Belgium in February, when it bought four companies dealing in waste management and industrial cleaning.

The move was not cheap. Shanks paid nearly pounds 70m to Sita, the companies' former parent, gearing itself up to 99 per cent.

But the companies generated profits of pounds 6m, boosting Shanks' profits to pounds 20.1m, and its income stream is more than sufficient to manage its debt.

One activity, recycling, is still unprofitable because prices for recycled materials are too low. Shanks estimates it loses pounds 1m a year on recycling.

But policy, both in the UK and Europe, is to discourage landfill by taxing it - that should eventually price recycling back into the market .

The company has good defensive qualities. Industrial waste may be cyclical, but household waste is not.

It has delivered 19 per cent growth over three years and outperformed the market by 25 per cent in the year to date. It is forecast to give full-year earnings per share of 10.8p.

The year-high price of 203.5p slipped yesterday to 199p, which gives a p/e of 18.4 - a slight discount to the market multiple of 18.9. Given its defensive qualities, buy.