TEG Group

HOLD

21/09/2010 Robert Tyerman

Analysts expect fast-growing organic composting specialist TEG Group to move into the black after doubling first-half turnover to £8.8m. Based in Chorley Lancashire, the AIM-quoted company, which develops and operates organic composting and energy plants and can now feed energy from waste onto the national grid, turned a £1.5m net cash drain into a £152,000 net cash inflow in the six months to June, despite also turning £55,000 pre-tax profits into a £376,000 loss after adjusting for negative goodwill.

TEG, which bought Midlands-based composting concern Simpro in June for up to £6m in a shares-and-cash deal accompanied by a £6.8m placing at 33p, ended June with £4.6m cash and has been winning useful contracts with local authorities and other bodies. Steered by chief executive Mick Fishwick, the company is continuing work under the Greater Manchester waste private finance initiative contract and has started work on its first anaerobic digestion (AD) plant (to break down biodegradable material) in Perth in a 50-50 joint venture with investment group Albion LLP.

Fishwick claims this project, involving a £700,000 public grant and a £50,000 commitment from TEG, will ultimately have a value of £4m. The company is in partnership here with German AD specialist UTS and AIM-quoted methane concern Alkane Energy.

Local authorities may be under spending constraints at present, but Fishwick argues environmental legislation and measures such as the annual escalation of landfill tax are forcing them to seek 'green' alternatives, including TEG's.
In present conditions, deals where TEG and partners build, own and operate facilities, rather than outright sales to third parties, are increasing their share of the revenue mix, already 24%.

Analysts see TEG, which lost an adjusted £900,000 last year, to make £500,000 in the second half of 2010, with £1.2m full-year pre-tax profits on the cards for 2011. Recommended by Growth Company Investor at 43.5p in March, the shares have eased to 33.5p, but could prove well placed for the longer term.