Silverdell – pure gold or fool’s gold?

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Shares in specialist environmental support services company Silverdell (LSE:SID) have fallen back since reaching above 20p in late February to a current 16.875p. These were shares I first recommended at 12.75p last year so I am ahead but is the share price slide telling us something?

Click here for my analysis of the investment proposition in a post-t1ps piece from November – when the shares traded at 13.25p

Earlier this month the company updated that it is trading in line with expectations and “maintains a strong order book and tendering activity remains very high”, though net debt was now anticipated to be approximately £1 million higher than previous expectations as a result of an exceptional charge following a settlement agreement on a contract it had secured in 2010. The company added that “considerable changes in policy have been implemented since the contract was first tendered and the board is confident that its far more stringent controls, combined with moving to work directly for clients, will avoid a similar situation in the future”.

House broker finnCap now forecasts year-end (30th September 2013) net debt of £9.2 million – which should still be comfortably manageable – with an unchanged pre-tax profit forecast of £9.3 million and earnings per share of comfortably more than 2p. I expect earnings to head towards 2.5p in the following year and, as per my earlier analysis, continue to consider – given the regulation around, and non-discretionary nature of, most decommissioning and remediation activity – a price-earnings multiple of 10x not overly demanding here. finnCap currently retains a 23p target price and there is an emerging dividend to boot. My target is 25p plus dividends. That is enough upside to make this a stock worth buying and tucking away.

Tom Winnifrith writes for 10 US and UK websites and can be followed on twitter @tomwinnifrith – you can also get links to all of his free articles on his own website

The premium website where all the best thoughts of Tom appear first is the Nifty Fifty. It is co-produced with infamous bear raider Lucian Miers and with Steve Moore, Tom’s collaborator at t1ps for many years. You can access the Nifty Fifty HERE

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