Helesi’s growing Greek trajectory

In uncertain economic climes, it pays to back businesses whose growth prospects are underpinned by legislative winds. In the case of Helesi, the Greek waste management specialist, its fortunes are thankfully tied to burgeoning EU red tape regarding waste recycling.

Wheelie bins are just one of the products from Helesi, which has expanded from its Hellenic base on the back of pervasive government recycling regulations in the more mature markets of Northern Europe, combined with increased waste management demand in the fast-growing economies of Southern Europe and the Middle East. Over the past four years, the group has grown at a compound annual rate of 43 per cent, while recently diversifying from making plastic waste bins into the provision of higher-margin services.

Waste bin manufacture is the core business, accounting for two-thirds of sales, with customers spread across more than 50 countries and ranging from municipalities to waste management firms.

What might be considered a low-margin, commoditised business is actually nothing of the sort for Helesi, whose designs require less raw material and ensure transport costs are low, to the benefit of margins. Moreover, the acquisition of a tyre recycling business two years ago means Helesi can manufacture wheels for its wheelie bins at a tiny cost. While escalating input costs dented margins slightly in 2007, management was able to mitigate the effect to a two per cent fall by changing the sales mix and selling into higher-margin markets such as the Middle East.

However, in recent years, Helesi has been hampered by manufacturing capacity constraints – with demand outstripping supply, finance director Apostolos Binomakis admits that the company had to turn away lots of business.

In response, last year the company launched an investment programme to dramatically expand its existing facilities in Greece and build a new plant in Italy.

This a83 million (£66.5 million) investment outlay, which will see group production capacity swell by 150 per cent, is close to completion. The new plant in Italy is set to start churning out pallet boxes by the fourth quarter, while the Greek wheelie bin facility will be fully expanded by the end of this year.

In spite of these production limitations, Helesi beat forecasts with its 2007 financials, which showed revenue increased by 42 per cent to a50 million and profit before tax by 38.5 per cent to a7 million. PYP, a waste management services company acquired in 2006, made its first full-year contribution and was joined by sister firm Perivallontiki, acquired for a10.9 million in November. It is a supplier of specialist vehicles to the waste management industry in Greece and Cyprus.

Extra capacity and a full year from Perivallontiki mean sales are forecast to grow considerably this year. Says Binomakis: ‘The new capacity will allow us to pursue new markets and take advantage of new leads in certain areas where the margins are very good.’ He admits that, although the services arm has ‘50 per cent visibility’ on 2008 revenues, ‘the market has not expanded as fast as we would like’. But the Greek government is being pushed by the EU to open up, and its first outsourcing contracts for waste treatment come up for tender in 2009.

Forecasts for 2008 from the investment arm of the National Bank of Greece suggest that revenues could rise by 34 per cent and by a further 19 per cent in 2009. Aided by the strong euro, forecasts leave the shares trading on prospective price-to-earnings ratios well below the group’s peers. Furthermore, Helesi, which has a10.4 million on the balance sheet and enjoys healthy cash generation, already pays a dividend. Buy.