quotedcleantech

By Andrew Hore

Waste composting plants operator TEG Group was making strong progress before delays in its Greater Manchester contract. Although the project will be completed, it will not be up and running as early as was originally hoped. Both TEG’s figures and its share price have been hit by these disappointments.

 
Environmental legislation and continued rises in landfill tax (£56/tonne and rising by £8/tonne each year) are fuelling TEG’s growth. Local authorities are required to reduce the waste sent to landfill, and there is speculation about a ban on organic waste, which is separated from other waste streams, going to landfill. Tighter composting rules will make it more difficult to launch new facilities and require the upgrading of older plants, with a number of TEG’s competitors having closed facilities that do not measure up to expectations.

This puts TEG in a strong position. Winning new contracts is important in moving the business forward: however, tender periods are long.

Although the company reported a higher 2011 interim loss resulting from those delays in its Greater Manchester contract, recurring revenues are increasing. The fourth site for the Greater Manchester contract, in Bolton, will proceed. However, equipment sales related to this plant will not contribute much in the current year, resulting in a contribution far short of the originally anticipated £4 million. The third plant in Trafford will be completed before the end of the year.

TEG processed 86% more waste during the first half of the year. Revenues grew by 6% to £9.33 million in the six months to June 2011, while the loss increased from £376,000 to £798,000. Although equipment sales fell, recurring revenues from plants operated by TEG jumped from £2.15 million to £3.84 million. In addition to the company’s organic growth, around £1.5 million of the increase came from the Simpro acquisition in June 2010, which brought with it six green waste composting sites.

The company’s cash balance at the end of June 2011 was £1.52 million, although net debt was £868,000. Since the recent £3.69 million placing at 10p a share the cash balance has increased to £3.31 million.

This placing provides an indication of how far the TEG share price has declined in less than 18 months. In the middle of 2010, the company raised £6.8 million gross at 33p a share in order to finance the acquisition of Simpro and additional TEG-operated projects.

In August TEG and its partner, Alkane Energy. were appointed preferred bidders for a food waste and anaerobic digestion contract for three North Wales councils: Denbighshire County Council, Conwy County Borough Council and Flintshire County Council. This is the first of a number of Welsh waste projects for which TEG is bidding.

TEG will own 70% and Alkane 30% of NEAT Biogas, which will construct a 20,000 tonnes per annum anaerobic digestion plant. The contract, for 15 years with a potential extension of five years, guarantees enough waste to fill 60% of the plant’s capacity, meaning that it should at least break even. TEG has potential waste supplies from north west England that will increase utilisation of the plant.

TEG’s first anaerobic digestion plant, in Perth, which should be commissioned by the end of this year, is being funded through a partnership with venture capital investor Albion Ventures. The 50/50 joint venture will construct and operate a 16,000 tonnes a year plant sited adjacent to TEG’s existing composting plant.

News of the planning application for a site in Dagenham is anticipated in the next few weeks. This, the first TEG plant in London, would include the first anaerobic digestion within the M25. The London Waste and Recycling Board has offered £1.9 million of debt funding for the plant which, if things go according to plan, could be up and running by the end of next year.

Around £1 million of working capital is required for the North Wales contract and the latest plants will be project financed. With no cash outflow from operations in the first half, TEG has plenty of cash to invest in new operations.

House broker Ambrian believes that TEG is on course for full year revenues of £19 million, down from £20.7 million, even though most of the revenues from the delayed Greater Manchester contract will not come through until next year.

Following a period of uncertainty about public spending, it seems that more projects are now starting to materialise.