Straight aims for steady recycling growth

Growth in recycling spurred by EU regulations and increasing environmental awareness on the part of local councils means that AIM-quoted Straight should be one of the few firms working with the public sector that is likely to grow in the incoming age of austerity. Having completed an impressive turnaround in 2009 under charismatic CEO Jonathan Straight, the Leeds-based concern now resembles an attractive, profitable growth play.

Established back in 1993 by Jonathan Straight, a determined entrepreneur with a striking appearance that includes a long ponytail, a waxed pointed moustache and an ever-changing collection of unusual spectacles, the group kick-started its trading life as a provider of kerbside recycling boxes for local councils. Since then, its portfolio has expanded to include a variety of recycling products including wheelie bins, water butts and kitchen caddies.

According to Straight, one of the group’s greatest achievements since floating on AIM back in 2003 was its 2005 takeover of its only serious competitor, Blackwall, a supplier of home composters and water butts. More recently, Straight has returned to the acquisition trail, last year acquiring gardening recycling business Harcostar Garden products for £400,000 and then this April, purchasing the order book and assets (moulds for two-wheeled containers) of the UK operation of recycling company Helesi.

One concern for investors is that a substantive amount of Straight’s business comes from contracts with local councils. However, Straight himself is keen to allay these fears, insisting that, despite the cuts that are on their way in the public sector, the business is unlikely to be affected.

‘Regardless of cost, people will still need wheelie bins and recycling boxes,’ he explains. ‘Also, due to EU legislation, it would be more expensive not to recycle due to the fines they would be forced to pay.’

He is a firm believer that the recycling business is a healthy, resilient and growing market.
‘As recycling is a legislatively driven business, recycling will only continue to grow. The recycling industry is an unusual business, insulated from the effects of the recession and likely to grow as political pressures and environmental awareness increases.’

Insistent that there is plenty of growth for his business to go for, Straight also explains, ‘We want to get nearer to our manufacturing. We have two injection moulding machines that we acquired from Helesi, as well as the company’s Bradford factories.’

Dramatically improved financials for the 2009 calendar year, showing a turnaround from losses of £972,000 to profits of £1.6 million, reflected the benefits of a restructuring bout in 2008, as well as an 11 per cent rise in turnover to £28.3 million, driven by growth in sales of food waste containers.

Sales from the core trade business (municipal and corporate revenues) grew by an impressive 17 per cent to £27.1 million, while the retail business, which supplies direct to the public, enjoyed a much improved performance
and should return to profit in 2010.

It would be remiss not to mention that Straight has had its fair share of disappointments as a public company – at one point, its market value fell from £35 million to £2 million within the space of a year. ‘We had problems we didn’t expect and the markets reacted negatively’, concedes Straight, ‘leaving our share price falling so far that, at one stage, we had more cash than our actual market cap.’

Nevertheless, the company, now with £1.6 million cash, was willing to take the hits and stay listed on the market because ‘we came to AIM ultimately with a long-term plan’. Today, Straight has ambitious expansion plans and its CEO believes it can ‘increase the market cap over the next five years, primarily through acquisitions’.

This year, analysts will be looking for an increase in pre-tax profits to £1.8 million as sales swell to £33 million. Based on 11.1p of estimated earnings, Straight’s shares are selling on a forward multiple of eight times, a rating that looks ungenerous for a revitalised business with healthy growth prospects.