Séché Environnement : Removing an eye - Saur

The group has currently no exposure to the UK market and we do not believe it is in its plans either. We maintain our Buy rating on Séché Environnement, the no. 3 in the French waste treatment market, with a fair value of EUR37 per share, pointing to upside potential of 34%. The prospect of the group taking a majority stake in Saur, which has been a major risk factor since 2007, now looks highly unlikely. In contrast, we favour the scenario of the current 33% stake being sold off, thereby providing a significant re-rating catalyst for the share, which is currently trading at record low multiples. 

• Sound fundamentals: Séché Environnement boasts a sound fundamental positioning based on niche markets (storage and treatment of hazardous waste, 62% of sales), with high value-added and benefiting from an advantageous regulatory backdrop. This strategy enables the group to generate far higher margins than rivals. The group's marketing clout, its diversified client portfolio and strict cost controls have helped ease the impact of the crisis.

• Saur, no longer a problem? Given the expiry of the call option on a majority stake in Saur and the total disagreement between Séché Environnement and other shareholders, the prospect of the group increasing its stake now looks unlikely. The only plausible outcome   would seem to be the disposal of the 33% stake, which we now view as a (bad) financial investment rather than a strategic holding. As such, our core scenario rules out any participation by Séché Environnement in a necessary refinancing operation for HIME-Saur.

• Attractively valued: At ~1.0x sales and 5.0x EBITDA, Séché Environnement is trading at historical lows dating back to 2002-03 and 2008. Our fair value works out at EUR37 per share, assuming a value of zero for the stake in HIME-Saur and the convertible bond.