Mercury Recycling (MRG)

Previous Stock Tip

These companies are all previous recommendations from the Red Hot Portfolio that I have subsequently recommended and then sold from the portfolio at a later date. By no means are these companies intended to be buy recommendations for you to go out and invest money towards their shares. For the opportunity to start making serious money from the recommendations I am making now, just start your no obligation trial!

Initial Recommendation: RHPS Issue 73 / December 2004

The regulators have gifted you the perfect opportunity to corner the market in recycling old light bulbs - take it now for the chance of a 77% gain inside 12 months

If, as the Nick Lowe song goes, you “love the sound of breaking glass” then I recommend you get a job with Mercury Recycling. I spoke to chief executive Simon Lebor to the accompaniment of the crashing and tinkling of shattering light bulbs. With this distraction I was unable to find the courage to ask Simon his age. But he did reveal that he started his career in the clothing trade in the late 1950s and had later become Managing Director of first High Street retail group Alexon, and then Ellis and Goldstein.

By 1995 he had retired from the clothing business and become a consultant. That year in Manchester he met a young entrepreneur, Andrew Smith-Lawrence, who was convinced that fluorescent lighting tubes should not be dumped in the ground because the mercury within would leak and contaminate the earth. He had ordered a machine from Sweden that could crush the tubes and extract the mercury, but he did not have the money to pay for it. Lebor dipped into his own pocket, and later on he brought in two other senior citizens as investors.

RHPS Verdict: The expression “Mad as a Hatter” comes from the twitching and dementia once common among hatters who used to dip felt into mercuric nitrate to soften it. But you don't need to be mad to buy these shares! Mercury is already enjoying organic growth, evidenced by the 18% increase in first-half turnover. But this should accelerate very rapidly from 2005 onwards.

One was Joe Dwek, who grew the value of Bodycote from £2m in 1972 to £1.4bn by the time he retired in 1998; and the second was former Labour cabinet minister and Bodycote board member, Lord Barnett. With one other associate and the Neill family, of whom more later, these three control two-thirds of the equity today.

This business proposition is simplicity itself - the firm does exactly what its name suggests

Mercury Recycling's business is simple enough - it recycles products that contain mercury, for example thermometers, dental amalgam and those tiny button-cell batteries found in hearing aids and digital watches - but principally fluorescent tubes and sodium lamps.

The recycling machine separates the tubes into their three components - the aluminium ends, glass and phosphor powder. The latter is then distilled to produce mercury or, in the case of sodium lamps, sodium hydroxide, and this is sold to the likes of Philips. But the revenue from this source is less than 5% of Mercury's annual revenue, which otherwise comes from providing a disposal service.

Lebor described it as a “penny business”, meaning that you need to recycle a very large number of light bulbs before you can make worthwhile profits. But that is exactly what is likely to happen. Every year 100 million fluorescent tubes and highway lamps are disposed of.

Given that a single tube can contain enough mercury to contaminate 30,000 litres of water, it is hard to argue with the EU Directive on the Restriction of Hazardous Substances, which stipulates that from August 2005 these and all other electrical equipment must be safely disposed of and not just dumped into the ground. The manufacturers of such products will bear the responsibility. In practice, this means that they must provide the means and foot the bill. So now large users, such as local authorities, hospitals, schools and prisons will be provided with a special waste container for tubes and lamps, alongside all those other ones for newspapers, garden waste, bottles etc.

When the EU directives really kick in, your firm will clean up

In fact, this is already happening, and I saw several crates of old tubes and lamps being delivered to Mercury's facility in Bushey, Hertfordshire. The UK Landfill Directive that came into force last July made it illegal to dump hazardous waste with non-hazardous waste, and now less than 10 of the country's 250 landfill sites will accept the former. This has pushed up the cost and improved the competitive standing of the alternative - recycling.

Scotland has gone one step further and classified light bulbs as “special waste”, which means that every movement must be recorded and traced. Naturally this bureaucratic nightmare deters would-be entrants to the industry and also ensures that Lebor regularly takes calls from customers who want this task taken off their hands.

Mercury is the largest recycler of fluorescent tubes in the UK, a position strengthened last November when it bought rival Simister from the Neill family for £900,000. Simister had a particular niche in the disposal of street lighting and also added its Bushey recycling facility to Mercury's own plant in Manchester.

Even so, Mercury recycles just 5m tubes and lamps annually, and although it is unlikely that the UK's entire 100m will ever be recycled, there is every chance that before long the total market will be 70-80m. Lebor mentioned the experience of Germany, which adopted this legislation before the UK, and saw the available market rise to 50% of the total number of tubes within two years.

So Mercury is gearing up for expansion. It is buying new trucks for delivery and collection, and has made a £1m investment in a new facility at Manchester's Trafford Park industrial estate, which will take its total annual capacity to 30m tubes.

UPDATE 1: RHPS Issue 74 / January 2005

RHPS Recommendation: SELL

MERCURY RECYCLING (MRG): Doubles your money in a month!

The shares have shot up and are already through my 40p target price. As no new developments have been reported I am going to bank a one-month gain of 102%!

This is why I love this job so much. We all know that penny shares have explosive potential, but there is nothing more gratifying than unearthing a gem such as this and to see spectacular results in such a short time. Here's to our first 100%-plus gain of the year - and many more to come throughout 2005.

UPDATE 2: RHPS Issue 75 / February 2005

RHPS Recommendation: HOLD

MERCURY RECYCLING (MRG): Blink and You Missed It

My sell recommendation in the last issue, at a price of 45p looks very smart. Trouble is, by the time RHPS got to you the chance was gone. So I think the fairest thing is to keep Mercury in the RHPS portfolio.

UPDATE 3: RHPS Issue 76 / March 2005

RHPS Recommendation: HOLD

MERCURY RECYCLING (MRG): Wait Until May

Chief Executive Simon Lebor is as mystified by December's share price spurt as I was. Annual results will be revealed in May, and I don't expect to hear anything before then.

UPDATE 4: RHPS Issue 79 / June 2005

RHPS Recommendation: BUY

MERCURY RECYCLING (MRG): Trebling Its Capacity

Mercury announced a small pre-tax loss of £31,000 for 2004, but turnover rose by 69% and is set to rise much higher as the EU directive on Waste Electrical and Electronic Equipment takes effect. Although this has been officially delayed by a few months, major organisations and government authorities are already beginning to dispose of fluorescent tubes in the prescribed manner. Mercury will be moving to its new site at Trafford Park this year, trebling its capacity. It describes a five-year national contract with the country's leading lighting companies as “underwriting our current investment programme”.

UPDATE 5: RHPS Issue 82 / September 2005

RHPS Recommendation: SELL

MERCURY RECYCLING (MRG):

The shares have had a good run this month, with trading volumes higher than normal. So with the shares now at my 40p target, we have a chance to take a 76% profit - in just nine months!

To take advantage of the recommendations RHPS is making today, start your no obligation trial now!

The figures refer to the past and past performance is not a reliable indicator of future results. The past recommendation highlighted here is a small company share.By their nature, such investments can be relatively illiquid and, as a result, hard to trade. This makes such shares more risky than other investments. Please seek independent financial advice if necessary. These figures do not include the bid-offer spread, unless otherwise stated. Since the service began on 01/12/98 running through to 31/07/07, the average overall performance of the shares recommended is up 19.91%.All gains exclude dividend payments and dealing costs, unless otherwise stated. Profits from share dealing are a form of income and subject to taxation. Levels and bases of, and reliefs from, taxation are subject to change, and depend on individual circumstances. Full portfolio available on request. Fleet Street Publications Ltd is authorised and regulated by the Financial Services Authority. FSA No. 115234.

www.fsa.gov.uk