For what should be a highly predictable business, the recent history of Britain’s quoted waste management sector is littered with let-downs. After series of setbacks, Waste Recycling Group was bought out by Guy Hands’s Terra Firma at a knockdown price, and Biffa’s short stint as a public company between its demerger from Severn Trent and its acquisition by private equity was not brief enough to prevent a profit warning.

Shanks, the sector’s sole remaining fully listed stock, has also provided its fair share of disappointments, from delays to its flagship municipal waste treatment scheme in East London to July’s disclosure of the temporary shutdown of its hazardous-waste plant in the Netherlands.

So yesterday’s statement from Shanks that first-half trading has been slightly ahead of expectations was met with relief – especially as it prompted a 4 per cent rise in current year forecasts.

However, that has not stopped shares in Shanks faring worse than the wider stock market, to be down by more than a quarter over the past five months.

The evaporation of private equity bid speculation in line with the fall in the availability of credit has played a part. So, too, has concern that higher interest payments on its euro-denominated debt are offsetting the beneficial effects of a stronger single currency (almost all of Shanks’s profits are drawn from the Low Countries), and slow progress in finalising a £400 million PFI contract in Cumbria, for which it is preferred bidder.

The broader concern is the extent to which Shanks, despite being seen as a quasi-utility, is exposed to economic slowdown. Although the volume of waste produced by households holds steady through boom and bust, it accounts for the minority of Shanks’s sales. Most sales involve commercial and industrial waste, which more closely tracks movements in GDP. Shanks concedes that the volume of construction and demolition waste that it treats in the UK has already fallen sharply.

However, recession and higher energy prices should also work in Shanks’s favour. First, from an increasingly punitive landfill taxation regime, which makes it cheaper to send waste for treatment and, secondly, from the ability to secure higher prices for electricity generated from incineration. Meanwhile, Shanks has a growing portfolio of emerging technologies and a clutch of potentially valuable PFI stakes.

At 198p, Shanks trades at 13 times current-year earnings, its lowest multiple for years. A solid hold.

Lonmin

Forget HBOS and Lloyds TSB. The FTSE 100 takeover that was always more immediately set to founder was Xstrata’s proposed £5 billion bid for Lonmin. Yesterday, a day before the “put up or shut up” deadline imposed by the Takeover Panel, it finally did.

With Lonmin trading one third below Xstrata’s £33-a-share offer, the stock market had already reached that conclusion. Although Xstrata cited the credit crunch for its withdrawal – or “unprecedented uncertainty” in financial markets and the short-term requirement to refinance its acquisition debt facility – the secondary effects of economic slowdown will have been equally as persuasive. Namely, the slide in platinum prices over the summer made the deal undoable at £33 a share.

On current spot prices, UBS calculates, Lonmin’s full-year profits will now be about $127 million (£71 million), against the annual interest charge of $600 million that Xstrata would have had to pay on the debt. The departure on Monday of Brad Mills as chief executive of Lonmin only provided further confirmation that the miner’s profits would not be as high as hoped.

Xstrata has lost none of its drive to build a diversified miner – as proved yesterday by its move to pick up a further 14 per cent of Lonmin, taking its stake to the 25 per cent limit allowed by South African rules. The problem for Lonmin investors is that, although Xstrata’s blocking stake makes a second bid only a matter of timing, they risk tying up their cash to little effect in the short term. Hopes that a new chief executive will rectify Lonmin’s operational problems and a low valuation (seven times earnings at £18.13) are enticing. However, the danger of a further deterioration in platinum prices instils greater caution. Avoid.

Redhall

The ease with which Redhall raised £20 million this week says much about the regard in which the City holds David Jackson and Simon Foster, the entrepreneurs behind the AIM-listed engineering services specialist. The pair have not erred since taking control of the former Booth Industries three years ago, and the proposed £18.6 million takeover of rival, Chieftain Group, which Redhall’s new funds will finance, promises more of the same.

The immediate reassurance is that, largely because of the performance of previous acquisitions, full-year profits will be ahead of forecasts. The longer-term lure is the scope Chieftain gives Redhall to consolidate its hold on nuclear engineering in the North West. Redhall’s biggest customer is Sellafield but Chieftain’s work elsewhere in Cumbria – in fitting out Astute-class submarines at Barrow-in-Furness – provides access to the nuclear marine business, as well as the Ministry of Defence’s aircraft carrier programme.

At a time when nuclear skills are in short supply, it also brings 700 additional staff and scope to switch security-cleared engineers between civil and military work. All of this is in keeping with Redhall’s strategy of focusing on areas of long-term contracted spending. Both companies have net cash and room to cut overheads.

At 249p, or 16 times this year’s earnings preChieftain, tuck away.

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