When you're sitting on huge gains, the temptation to take profits can be overwhelming. Not so with Hayward Tyler (HAYT). Up 164 per cent since our buy tip 10 months ago, we believe the pumps and motors manufacturer has plenty left in the tank. EPS growth of at least 37 per cent this year is already confirmed, the order book is bulging and a period of further strong growth looks assured. The re-rating has much further to run.
- Rapid growth confirmed
- Bulging order book
- Government grant to Luton factory
- Paid maiden dividend in February
- Recent weakness presents buying opportunity
- Aim shares inherently more volatile
- Competition risk
Momentum built during a powerful first half has continued through to the year-end. Results for the year to March 2014, due to be announced in early July, "will be at least in line with current market expectations", Hayward said earlier this month. Core markets remain "buoyant", it added, and new orders are up 8 per cent at £46m.
Nuclear work is flooding in. Sweden's ageing Forsmark nuclear plant has just ordered £2.3m of new parts and South Korea $0.6m of kit. Hayward has a first-class reputation and over 1,000 pumps in nuclear plants around the world; and acceptance onto a government-backed programme promoting UK nuclear suppliers makes further orders inevitable.
According to the World Nuclear Association, the number of plants could more than double to nearly 1,000 by 2030 - 71 are currently being built. But business is booming in the conventional power market, too. The Chinese have bought about £5m of Hayward's expensive boiler circulating pumps (BCP) since March, and oil companies are snapping up the company's ultra-durable submersible pumps and electric motors.
And Hayward believes it could beat margin targets now that a regional growth fund grant of up to £3.8m is on its way. Expect confirmation in July. Hayward boss Ewan Lloyd-Baker says he'll use the money to "future-proof" the existing manufacturing and R&D facilities in Luton, where £1m of savings have already been found.
HAYWARD TYLER (HAYT) | ||||
|---|---|---|---|---|
| ORD PRICE: | 74p | MARKET VALUE: | £34m | |
| TOUCH: | 73-75p | 12-MONTH HIGH/LOW: | 90p | 25p |
| FORWARD DIVIDEND YIELD: | 2% | FORWARD PE RATIO: | 12 | |
| NET ASSET VALUE: | 23p* | NET DEBT: | 80% | |
| *Includes intangible assets of £3.1m, or 7p per share | ||||
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m)** | Earnings per share (p)** | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 32.1 | 1.7 | 3.6 | nil |
| 2012 | 33.0 | 1.3 | 3.2 | nil |
| Year to 31 March | ||||
| 2013† | 40.5 | 2.4 | 3.7 | nil |
| 2014** | 42.3 | 3.7 | 5.1 | 1.3 |
| 2015** | 46.4 | 4.1 | 6.2 | 1.5 |
| % change | +10 | +11 | +22 | +15 |
Normal market size: 3,000 Market makers: 4 Beta: 0.2 **FinnCap estimates, adjusted PBT and EPS figures †15-month period | ||||
Hayward is a more grown-up company these days, too. In January, the company's biggest shareholder, Indian engineer McNally Bharat (MBE), sold its 42 per cent stake to willing blue-chip institutions at 65p - among them Blackrock, which now owns 8 per cent of the business, and Crystal Amber Fund with 5 per cent. New bank facilities will save £100,000 a year, and a maiden dividend has been paid.
Yet, despite the bullish outlook, Hayward shares have fallen 10 per cent since last month for no discernible reason. Earnings are expected to rocket 22 per cent in the year to March 2015, according to house broker finnCap, putting the shares on a forward PE ratio of less than 12. That's a 25 per cent discount to the FTSE All-Share industrial engineering sector, currently on a multiple of 16.5 for calendar year 2015.
