SHANKS & McEwan has high hopes of an extension for a three-year Government contract to
dispose of cattle carcasses following the BSE scare.
Its Rechem subsidiary has a #9m deal to dispose of 45,000 tonnes of waste from the cull scheme but Shanks believes substantial quantities - ''several hundred thousand tonnes'' - remain stored in Ministry of Defence sites which will keep Rechem busy.
Rechem profits of #1.75m last year helped push the group total ahead by 9% to #25m. Turnover rose by a quarter to #155m.
However, the turnover figure is distorted by the introduction of the landfill tax which more than doubled to #38m after its half-year impact on the 1996-97 figures.
The results contain no contribution from the #66m purchase of four waste management companies in Belgium from Sita. Shanks is now the second-largest waste company in that country.
The most profitable operations are in recycling aluminium. Many of the mills equipped to handle paper recycling are in the Far East and are suffering in the economic crisis there.
The company's main waste operations are in Scotland and South-east England, where prices are moving ahead of inflation. In Scotland competitive conditions are tougher. The Blochairn Road operation in the north of Glasgow handles 25,000 tonnes a year.
However, margins are improving as Shanks handles ''active'' material such as household waste rather than inert rubbish such as rubble.
Landfill gases are used to increase electricity generation. The Greengairs plant, near Airdrie, is increasing its capacity with another two megawatt plant coming on-stream this year. Shanks is also investing in a new development at Tarbet Hill, Aberdeen. Shanks has some 40mw available in an activity which accounted for about 10% of turnover and a slightly greater proportion of
profits in 1997-98.
In the wake of purchases from Hanson, the company has some 125 million cubic metres of landfill void which it is consuming at around six million cubic metres annually. Shanks is thought to be the best placed waste company in Britain in that respect.
Allan Millar at Greig Middleton reckons these assets could be worth more than 200p per share and that provides a strong underlying argument for buying the stock.
He forecasts pre-tax profits for the current year of more than #32m and believes that Shanks could be an attractive proposition for a utility company seeking to diversify into a growth business.
The company is lowering its overall cost base through a contract to handle waste for
Peterborough Council.
Chairman Gordon Waddell said that the continued progress of the company is very encouraging.
The dividend total has been raised 7.7% to 4.2p with a 2.8p final.
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