I’d describe today’s half-year figures from specialist waste management firm Augean (LSE: AUG) as blisteringly good.
In terms of the adjusted numbers for the six months to 30 June, revenue jumped 40% compared to the equivalent period the year before and basic earnings per share shot the lights out by moving 114% higher. The progress showed up in cold, hard cash too, with the net cash figure on the balance sheet rocketing by 178% to £22.8m. Admittedly though, the firm did enjoy the £3.35m proceeds of a disposal in the period, which helped.
Argument with HMRC
Things have come a long way since the bleak-looking outlook of two summers ago. In August 2017, the firm was hit by a Notice of Assessment for Landfill Tax from Her Majesty’s Revenue and Customs. It turned out that HMRC had been discussing with the firm whether it had paid sufficient landfill tax in relation to its treatment and disposal of hazardous waste.
The news hit the shares hard and they plunged by around 60% in the space of a week, to just 23p. Indeed, Augean was on the hook for millions in unpaid tax and interest. But it vowed at the time to “robustly challenge” the landfill tax assessment “and any other subsequent assessment it may receive from HMRC.”
In hindsight, buying the shares on the plunge would have delivered spectacular returns because today, the share price stands close to 118p. But Augean looked risky back then because there was a real chance that back-taxes and interest could have wiped out the firm’s finances, perhaps leading to the need to re-finance and the possibility of major shareholder dilution.
Subsequently, HMRC ‘went for it’ and issued a tax demand worth tens of millions to Augean, after which followed a period of can-kicking until today. Augean has maintained all along that it believes it has collected and paid its taxes correctly and that HMRC’s assessment is wrong. Meanwhile, alongside the ongoing legal battle, the firm has been trading its socks off and the share price has moved higher to reflect operational progress.
Then, on 15 July this year, the company revealed it had been granted permission to not pay anything to HMRC in respect of the tax assessments “before the conclusion of any tribunal.” My guess is that the firm has a strong legal case, and the performance of the share price suggests that investors believe it will end up not paying the full amount, if any, of the money demanded by HMRC.
Good trading
It’s quite a back-story. And in the meantime, the firm reported today that its business optimisation programme delivered cost savings “considerably exceeding target,” which, along with the impressive growth in revenue, helped deliver those stunning advances in profits.
Looking ahead, the company said it expects further growth from its Energy from Waste and North Sea Decommissioning markets and the directors anticipated exceeding market expectations for the full year to December 2019. Yet the firm remains fairly valued with the forward-looking earnings multiple running just below 11 for the current trading year.
Even after such a strong run-up I’m tempted by the stock, although there’s no dividend to collect with this one, at least for the time being, and probably not until we see the end of the messy HMRC situation.
