Pumps and motors manufacturer Hayward Tyler (HAYT) has undergone one of the most dramatic transformations in its near 200-year history. A major restructuring is complete, supply chain problems resolved and a powerful backer has helped strengthen the balance sheet. Orders are rising fast, too, and directors are buying. Yet little of this is reflected in the shares' rating of just 5.5 times forecast earnings.
- Successful restructuring
- Director buying
- Order book growing fast
- Indian partnership bearing fruit
- Lowly rated shares
- Less liquid stock
- No dividend
In February, the company changed its name from Specialist Energy Group to Hayward Tyler, the name of its core subsidiary. The business sells expensive boiler circulating pumps (BCP) to power plants and ultra-durable electric motors to oil companies. The brand is highly regarded and, with only Germany's KSB and Torishima of Japan able to compete, it has huge market share. However, for several years the group has wrestled with operational problems.
But over the past 15 months, an ambitious restructuring plan has focused on turning around Hayward's previously loss-making Luton-based manufacturing operation. Savings of £1m a year have been made and the supply chain has been overhauled with the number of suppliers cut by 80 per cent. Chief executive Ewan Lloyd-Baker predicts a 35 per cent increase in underlying efficiency and is focused on a programme of "continuous improvement".
A deal with McNally Bharat (MBE) in April last year has also played a key role in the group's transformation. The Indian engineer bought £5m of new shares at 50p each, more than twice the market price at the time, allowing Hayward to buy out an expensive inflation swap, agree new bank facilities and negotiate better terms with suppliers. Hayward has changed its year-end from December to March to align itself with MBE, which now owns a 42 per cent stake.
HAYWARD TYLER (HAYT) | ||||
|---|---|---|---|---|
| ORD PRICE: | 28p | MARKET VALUE: | £12.7m | |
| TOUCH: | 27-29p | 12-MONTH HIGH: | 34.5p | LOW: 10p |
| FWD DIVIDEND YIELD: | nil | FWD PE RATIO: | 5.5 | |
| NET ASSET VALUE: | 22p | NET DEBT: | 87% | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p)* | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | 38.5 | -2.07 | 8.23 | nil |
| 2011 | 32.1 | -3.08 | 3.63 | nil |
| 2012 | 33.0 | 1.33 | 3.18 | nil |
| Year to 31 Mar | ||||
| 2013** | 40.5 | 1.49 | 3.68 | nil |
| 2014*** | 40.0 | 3.20 | 5.10 | nil |
| % change | -1 | +114 | +39 | - |
Normal market size: 3,000 Market makers: 5 Beta: 0.32 *Underlying EPS figures **15-month period ***finnCap estimates | ||||
On a pro-rata basis, revenue in the recently reported 15 months to March was up slightly, but more encouragingly, a sharp rise in margins meant a 13 per cent increase in underlying trading profit. What's more, pro-rata order intake grew 25 per cent to £49.5m. Crucially, the manufacturing division, which lost £1.6m in the first half of 2012, made a small operating profit in the three months to March. Meanwhile, Hayward's higher-margin aftermarket division made a £6.9m underlying operating profit and extra equipment orders will only increase demand for spares.
And trading conditions look good. Power generates over half of group revenue and strong growth is expected from new plants being built in India and China. Business from the nuclear industry has picked up due to an increased focus on safety following the Fukushima disaster. And, while all Hayward's markets are growing, demand from the oil and gas industry is particularly strong.
