TEG GROUP, MARCH 14th 2014

In 2009 TEG group’s share price was 49p.  It is now 4.5p with a market capitalisation of £8m.  It scores well on Piotroski factors despite being unprofitable.
 
TEG is an organic waste technology company.  It builds anaerobic digestion plants and in-vessel composting plants.  Some plants produce gas to generate electricity which is fed into the grid and receives government incentives. Also vast amounts of compost is produced for sale.   A new revenue avenue is being explored: piping gas into the gas grid.  Selling heat is also possible. 
Local authorities are under pressure to recycle organic matter.  If they send it to landfill they are charged £100 per tonne.  They can sell it to TEG’s plants for £50-55 per tonne.

Roughly half of the company’s revenue of around £22m comes from contracts to build plant for customers to then operate.  This is a volatile source of income and has risks, e.g. Manchester Council have retained over £2m of the money they owe TEG for a plant until they are completely satisfied.  The other source of income comes from running plant.  For example, for the only AD biogas plant in London, commissioned and handed over in March 2014, TEG will receive £1.3m per year for 15 years.  It also retains a 24.5% shareholding in the scheme (1.4MWs of electricity to power 2000 homes plus 36,000 tonnes pa in AD digestate plus 14,000 tonnes pa of compost for agricultural use).  

TEG operate over 10 plants around the UK.   On the negative side (causing the share price fall) it made profits in only one year out of the last 10.  Peter Gyllenhammer has built up a 20% stake, no doubt attracted by the high tangible net assets relative to market capitalisation.  I guess he will be pushing for a greater focus on profits.
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The balance sheet seems strong, but is small considering that a plant can cost £10m-£15m.  However, they usually partner with other organisation.  In most years the absence of profits has meant that the directors have had to sell shares or raise loan capital to undertake projects.  Tangible assets at June 2013 interims are £32.2m. Current liabilities of £13.3m and non-current liabilities of £2.2m leave £16.7m net tangible assets.