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March 30, 2015

Hayward Tyler opens Shanghai office as it eyes nuclear and chemicals market opportunities

Specialist engineering group Hayward Tyler (LON:HAYT) disclosed £1.1mln of contract wins in an upbeat fiscal fourth quarter update.

Trading has been healthy across all of Hayward Tyler's markets in 2015, and the company said it successfully opened a new sales office in Shanghai to complement its existing service and overhaul facility in Kunshan, a city in the greater Suzhou region of China.

The new contracts announced on Monday were both from the eastern hemisphere. A contract from Shanghai Boiler Works in China for the delivery of two boiler circulating pumps for the 1000 megawatt super-critical Beijiang power plant in Tianjin Province, Northern China, is worth more than £600,000. The pumps are due for delivery in October and November this year.

Meanwhile, in India, an after-market order due for delivery before the end of December and valued at more than £600,000, further supports the company's conventional power generation installed base in Chhattisgarh state, Hayward Tyler said.

Outside of the conventional power generation market, the company is hot on the trail of new contracts in the UK nuclear new build market, while in the oil & gas sector the company is receiving significant interest from the industry as a result of the ability of its technology to secure greater efficiency and extraction from offshore wells.

"In spite of the tightening market conditions, the group continues to make solid progress across its chosen markets, which underpins management's expectation of meeting market expectations for the full year," said Ewan Lloyd-Baker, chief executive officer of Hayward Tyler.

Back in August 2012 the shares were trading as low as 9.8p, since when they have increased six-fold, but they are down by one-eighth year-to-date, with investors concerned about the group's exposure to the oil & gas industry.

Chief financial officer Nicholas Flanagan said such concerns are overplayed, as only 10% or so of revenues came from that sector last year.

"We've got a broad industry spread, and we've got a very broad geographic spread, and that offers us opportunities in other markets," Flanagan told Proactive Investors. On top of that, oil & gas contracts are usually priced in dollars, so the strengthening of the greenback against sterling offers some benefit as well.

"One of our core products is the sub-sea motors, and that helps customers to significantly reduce the cost of extraction, so in these cost conscious times, that's a help to them," Flanagan observed.

Referring to the new office in Shanghai, Flanagan said that was "all about getting closer to market in terms of product ranges".

"Our US business won one contract last year in the chemicals sector because of the close cooperation of our sales team in Kunshan , and I think that gave us the impetus to open the Shanghai office, which is around selling new units, not only for BCPs - boiler circulation pumps - but other industries as well, such as the chemicals and nuclear industries.

"We've got these offerings, and while we've penetrated the Chinese power market very well, the nuclear and chemicals markets are opportunities for us," Flanagan said.

Closer to home, the expansion of the firm's Luton facility to meet anticipated increased demand remains on track.

In house broker finnCap's view, the fourth quarter trading update was a satisfactory one.

The broker is making no change to its fiscal 2015 (FY15) forecasts, as Hayward Tyler's management indicated it expected to meet full-year expectations, but finnCap said that based on those expectations, the shares look good value, especially in light of recent share price weakness.

"With maintained forecasts, the shares look good value, trading on a significant discount to many of its industrial equipment peers, on a P/E [price/earnings ratio] of 9.6x for the year just ending, dropping to 8.6x in 2016, or an EV/EBITDA [enterprise value/underlying earnings] of 6.3x," the broker said, as it reiterated its price target of 113p.

The price target is based on a P/E fair value of 14 times projected earnings for fiscal 2016.

Hayward Tyler shares currently trade at around 70p. @MasterMetals MasterMetals Blog

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