Indeed, if a company specialising in waste and waste disposal was to compete for investment against the hottest new app, online fad or high-risk/high-reward startup, it wouldn’t stand a chance (although a waste disposal app might). However, disposing of rubbish is a huge market, that’s growing every year and this will continue no matter what the economic situation. 

Rubbish trends (sorry) imply that waste disposal groups Biffa (LSE: BIFF) and Shanks (LSE: SKS) could be some of the best long-term defensive companies trading on the London market today. 

Waste giant 

Shanks is currently in the process of merging with Belgian peer Van Gansewinkel Groep BV to create a leading waste-to-product business in the Benelux countries. The two managements believe that by combining, the groups will be able to cut €40m of costs, improving margins and leaving more profit to channel into expansion. Shanks is paying €482m for Van Gansewinkel. 

Shanks’ acquisition of its Belgian peer is part of the group’s plan to complement organic growth through acquisitions. As I said above, waste is a defensive business but growth is slow, so both Shanks and Biffa are looking for bolt-ons to boost growth. 

Still, organic growth is hardly sluggish at these two waste groups. Shanks reported today that revenue for the six months ended 30 September 2016 rose 7% in constant currencies to £348.4m while underlying profit before tax grew 23% on the same basis, or 44% at reported rates. Underlying earnings per share expanded by 23%. 

Shares in Shanks currently trade at a forward P/E of 22.8, which is fairly expensive. That said, analysts have pencilled-in earnings per share growth of 40% for the group’s fiscal year ending 31 March 2018 after the Van Gansewinkel acquisition completes. Overlaying this earnings growth on the company’s valuation gives a PEG ratio of 0.4 for 2017. A PEG ratio of less than one indicates that the share in question offers growth at a reasonable price. 

Unloved Biffa 

As Biffa is new to the London market, City estimates for growth are thin on the ground. But management figures indicate that the company could be undervalued at current levels.

Biffa is the second-largest waste management company in the UK, employing 7,000 people and disposing of 6.6m tonnes of waste every year from more than 95% of UK postcodes and 2.4m households. 

Last year, before the company became a public entity, Biffa reported underlying earnings of £122m on revenues of £927.5m. The company’s current market capitalisation is less than £450m. Based on last year’s numbers then, Biffa is trading at 3.7 times 2015 underlying earnings and 0.5 times revenue. 

Biffa also appears cheap compared to international peers. As the Financial Times points out today, Biffa’s enterprise value is a modest 5.6 times trailing earnings compared with French rival Veolia’s 7.7 times trailing earnings. 

Nonetheless, for the time being, these estimates are just that, estimates. Until Biffa reports its first set of results as a public company and investors have more clarity, Shanks may be the better investment. 

The post After today’s results, is Shanks Group plc the better buy over Biffa plc? appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Cash from waste

The proposed merger with the privately-owned Van Gansewinkel Groep (VGG) of the Netherlands and Belgium gave Shanks Group (LSE: SKS) shares a big boost. The waste disposal specialist’s shares were suspended when rumours emerged in May, but since the deal (regarded as a reverse takeover by FCA rules) was formally announced in July, the Shanks price has soared 27% to today’s 102.5p.

Friday’s update didn’t really move the shares, but it did expand on a few of the details of the transaction. The takeover should be worth €484m on a debt-free cash-free basis, and the balance of shares and cash has been adjusted to enable VGG’s existing debt to be repaid at completion — it’s sounding like around €286m in cash and the rest in shares.

Trading at Shanks is said to be in line with expectations, with VGG’s trading “significantly ahead of budget.” The merger is predicted to yield around €40m in annual cost savings within three years of completion, so does this look like a good investment now?

Shanks alone has an EPS rise of 6% forecast for this year with 18% next year, and the price hike has put the shares on P/E multiple of around 20 — but it’s going to take some time for the shape of the combined entity to come clear. It’s a profitable business, and the merger should make for a significant increase in efficiency. It’s definitely one to keep an eye one, I’d say.

Emerging markets bargain?

I’ve had my eye on Investec (LSE: INVP) for some time, as the specialist banking and asset management group’s shares have been pummelled by economic worries in its home country of South Africa — since a high in May 2015, the shares have shed 27% of their value to today’s 470p.

But with forecasts suggesting P/E multiples of only about 10 while dividends are predicted to yield around the 5% mark, has the downturn been overdone? I think it has, and Friday’s AGM trading update gives my optimism a bit of a boost.

Prior to first-half results due on 17 November, Investec admitted that it  “continued to see high levels of macro uncertainty.” But despite that the company’s Asset Management and Wealth & Investment divisions are “expected to report results comfortably ahead of the prior year,” being buoyed by a recovery in equities and net inflows of funds.

Overall, “operating profit is expected to be slightly behind the prior year; albeit well ahead of [the second half to March 2016].” City tipsters are forecasting a 7% rise in EPS this year, though I do think that might turn out to be a bit optimistic — I’d be happy to settle for a flat year in the current climate.

I’m particularly encouraged by the return to net funds inflows from Investec’s customers, and I really can’t help seeing the depressed share price as an over-reaction to short-term problems. The South African economy is likely to remain rocky for a while, but in the long term I can only see Investec shares doing well — and those dividends look very tasty.

The post Has Friday’s news thrown up a couple of hot bargains? appeared first on The Twelfth Magpie.

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Looking ahead, NCC Group offers excellent growth prospects. Its bottom line is due to increase by 13% this year and by a further 16% next year. This puts it on a price-to-earnings growth (PEG) ratio of 1.1 and this indicates that while its shares may have risen sharply today, there could be much more to come. That’s especially the case since NCC looks set to benefit from a tailwind due to cybercrime becoming an even greater threat over the medium-to-long term.

Further to fall?

Also rising today are shares in Thomas Cook (LSE: TCG), with the travel company up by as much as 10%. That’s despite no significant news flow having been released by the business. Clearly, Thomas Cook is enduring a difficult period as demand for flights and holidays in Europe and other parts of the world has fallen due to fear of further terrorist attacks.

As such, Thomas Cook’s share price has slumped by over 50% since the turn of the year and further volatility could lie ahead. In addition, Brexit may cause demand for luxury/discretionary items such as holidays to fall yet further, which would cause Thomas Cook’s financial outlook to deteriorate. Therefore, investors should seek out a wide margin of safety before buying its shares.

With Thomas Cook trading on a PEG ratio of just 0.2, it seems to offer excellent value for money. In the long run it could prove to be an excellent investment, but in the short term things could realistically get worse before they get better. Therefore, for less risk-averse investors Thomas Cook looks like a sound buy, but could trade lower over the coming months.

Cost savings

Meanwhile, shares in waste disposal specialist Shanks (LSE: SKS) have been down by as much as 12% today despite a lack of news. Of course, Shanks is in the middle of a merger with van Gansewinkel Group, which could see significant synergies and an improved financial outlook for the two companies. In fact, Shanks believes that cost savings could be made in a number of areas including route optimisation, site rationalisation, improved procurement and several other areas. This could lead to rising profitability and improved investor sentiment.

Of course, Shanks’s share price performance year-to-date has been disappointing, with it having fallen by 16%. And while the merger may act as a positive catalyst on its share price, its price-to-earnings (P/E) ratio of 16.2 indicates that it’s over-priced at the present time.

The post Are NCC Group plc (+10%), Thomas Cook Group plc (+10%) and Shanks Group plc (-12%) ‘buys’ on today’s major price moves? appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK owns shares of NCC. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Despite the difficult trading conditions, Shanks’ commercial division has continued to deliver strong profit growth, driven by the company’s self-help initiatives. And its hazardous waste division has also traded robustly despite the deterioration in the oil and gas sector, which makes up around half of its sales. But with Shanks’ municipal division delivering worse performance than expected, its near-term outlook remains very challenging.

Looking ahead, Shanks was expected to post a fall in earnings of 5% prior to today’s update. As such, investor sentiment could worsen in the near term as the market begins to price-in an additional deterioration in its profit outlook. And even though Shanks is expected to rebound with double-digit earnings growth next year, its price-to-earnings (P/E) ratio of 17.7 indicates that its risk/reward ratio is relatively unfavourable at the present time.

Turnaround stock?

Also recording a falling share price today is Sports Direct (LSE: SPD), with its shares having declined by almost 30% since the turn of the year due in part to its own profit warning. This was at least partly because of challenging performance in its European division and while disappointing, international expansion could still offer improved growth prospects for the company in the long run.

Clearly, Sports Direct is often in the news regarding its staffing policies, but it remains one of the most successful British retailers of recent years. Its business model was able to adapt to the cost of living crisis during the Credit Crunch and now needs to adapt to a UK consumer who has higher disposable income in real terms.

This could be a challenge and the company’s share price may come under pressure in the short run as its dirt cheap pricing could hold less appeal with wage growth being higher than inflation. But Sports Direct’s price-to-earnings growth (PEG) ratio of 1 indicates that it could become a top notch turnaround stock.

Better times ahead?

Similarly, AstraZeneca (LSE: AZN) is also enduring a very challenging period at the present time, with the pharmaceutical company being forced to come to terms with a patent cliff that has caused a severe decline in its earnings in recent years. Looking ahead, this is set to continue, with AstraZeneca expected to report a fall in its bottom line of 6% in the current year.

However, while this is disappointing, the market appears to be looking further out to AstraZeneca’s expected turnaround. With its pipeline gaining momentum through multiple acquisitions and drug development/approval news being relatively encouraging (as recent news has shown), investor sentiment could improve and push the company’s share price higher after its decline of 4% in the last year. And with AstraZeneca trading on a P/E ratio of 15.9, it continues to offer excellent turnaround potential.

The post Will AstraZeneca plc, Shanks Group plc And Sports Direct International Plc Make Storming Comebacks? appeared first on The Twelfth Magpie.

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The Chinese slowdown and record low oil prices have left their imprint all over the indices. In addition to this mess, smaller UK-focused companies could suffer from more pronounced volatility should a referendum be held as early as June, which news reports suggest is David Cameron’s preference.

Analysts at Credit Suisse are pointing at the three UK companies with the largest risk due to European exposure  — Berendsen Plc, Thomas Cook Group Plc and Shanks Group Plc. They generate more than 60% of their income on the Continent and all three happen to be in the FTSE 250.

Volatility indicators show too that the swings in UK markets have been more pronounced this year than movements in European markets.

Small IS better

Over the past few years there has been sense in fleeing into small and mid-caps when the Footsie let you down. The FTSE 100 comprises companies that generate 70% of their income outside the UK. Escaping its global risks by targeting companies with more UK-focused operations might no longer make such sense if you look at the performance of indices this month.

But is that really the case? Let’s look at what’s going on and how stocks are really affected.

The hype factor?

Firs, there might be more hype than fact to the idea that the indices are down due to Brexit fears. In my view, the FTSE 250 is at its lowest premium over the Footsie since May because investors have taken out money while it was still there in the wake of the global carnage caused by oil and a weakening China. Valuations, which had been driven up last year by investors eager to buy into UK companies dealing with the strong UK economy, have fallen 18% this year. Incidentally, the index hit a decade high at the end of 2015. The FTSE 250 average multiple is now 15.8 times projected earnings compared with 14.8 for the FTSE 100. And both indices are said to still be overvalued.

Second, the forecast earnings of smaller companies still outstretch those of the FTSE 100 generously, something investors never ignore for long. Last year’s returns on the AIM All-Share Index were robust. It was up 6.6% despite also being dragged down by energy stocks. And the FTSE Small Cap index, which was up 4% last year and has shed less than 1% so far this month, has an average growth prognosis of 25%.

Finally, Britons won’t stop consuming should the Brexit happen. They might consume differently. But that won’t immediately wipe out the earnings potential of sound UK businesses operating in a still-expanding economy.

There’s plenty of scope for small and selective mid-cap companies to continue performing well, despite Brexit fears. Brexit is a concept at the moment and not a reality, which is important to bear in mind as the EU recovery starts to pick up and potentially offer good opportunities, especially in cyclical stocks.

The post Brexit Undermining Small Caps? Baloney! appeared first on The Twelfth Magpie.

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Angelique van Engelen has no position in any shares mentioned. The Motley Fool UK has recommended Berendsen. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

KAZ Minerals

It comes as no great surprise that KAZ Minerals (LSE KAZ) continues to suffer the wrath of the market. The copper miner is currently down an eye-popping 20% in start-of-week business, meaning its shares are now worth 95% less than they were just 12 months ago! But I do not believe the worst is over just yet.

KAZ Minerals’ latest dive has coincided with another fall in the red metal price, and copper is now back below the $5,000 per tonne level, at $4,943. The commodity is now just $80 off the six-year troughs struck last month, and I believe a fall back through this level is an inevitability given the industry’s reluctance to meaningfully shutter production, not to mention relentless stream of negative economic news flow from China.

With metal prices back in free fall, and Credit Suisse slashed its rating on KAZ Minerals last week owing to the difficult industry backcloth, commenting that “given [the company’s] high debt levels, the funding risk is high and the valuation very sensitive to medium- to long- term copper price assumptions.” I reckon both copper price, and consequently KAZ Minerals’ bottom line, should continue to worsen as supply/demand dynamics deteriorate.

Pennant International Group

Those suffering from heart palpitations had best steer clear of Pennant International (LSE: PEN), too, the business having conceded 23% so far on Monday. Sickly investor sentiment was prompted by the firm’s latest interim statement, which showed revenues tank 41% during January-June, plunging to £5.7m. As a result the firm swung to a pre-tax loss of £750,000 from a profit of £1.18m a year earlier.

Pennant International said that “contract awards have been delayed by the weakness of the oil price, election uncertainty in the UK and the complexities of public sector procurement.” Although the logistics specialists remain bubbly over its prospects for next year the market clearly disagrees, thanks in no small part to the likelihood of further pressure from the oil sector.

Indeed, investors paid little regard to news that Pennant International had inked a major contract with a global aerospace and defence contractor worth more than £7m, a deal which could rise to £9m. But with the company advising that the outcome for 2016 “could either be in line or significantly below market expectations” according to the timing of anticipated contracts, more bad news could be lurking around the corner for the Cheltenham-based business.

Shanks Group

Sentiment towards Shanks Group (LSE: BLT) has been far more settled compared with its two FTSE peers, however, and the business was last dealing 0.3% higher in Monday’s session. The waste and resource management specialists advised that “trading performance has been in line with the Board’s expectations” during April-September, it announced today.

And promisingly Shanks said that conditions in its Netherlands unit continue to improve, a situation that should offset the impact of weak oil prices on its Hazardous division and delays to its waste management facility at Wakefield. The latter is is likely to result in additional costs to the tune of £5m, the business noted.

The City expects improving demand for Shanks’ services to flip the business from a projected 6% earnings dip in the 12 months to March 2016, to a 14% advance in the following year, pushing a P/E ratio of 19.3 times for the current period to a very-respectable 17.1 times for 2017. Although investors should of course be vigilant concerning the state of the oil market, I reckon the company’s long-term earnings prospects are encouraging as market conditions elsewhere keep on improving.

The post Should You Buy KAZ Minerals plc, Pennant International Group plc And Shanks Group plc Following Today’s Developments? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.