To leave BP after nearly 30 years in various senior roles - including global head of mergers and acquisitions - to become the chief executive of a little-known, Aim-listed oil recycling company, Ian Smale must have seen huge potential in Hydrodec (HYR).
- New management with strategic focus
- Fully funded for growth
- Director deals
- Green sky upside
- Still loss-making
- Plant explosion in Ohio
Hydrodec's niche technology currently allows it to recycle used transformer oil - the oil used to keep electrical transmission boxes from overheating - and turn it into a product that's as good as new, with almost zero waste, at a significantly lower cost than the competition. Hundreds of millions of litres of the stuff are currently used each year in a global market valued around $1.6bn (£1bn). Admittedly, Hydrodec's market share is tiny, but Mr Smale hopes to rapidly expand production and eventually transfer its technology to the much larger lubricant oil market - where global sales total in excess of $30bn a year.
Mr Smale took the helm in early 2012 and put in place a strategy to grow the company by way of strategic partnerships, enter new and larger markets, and clean up the balance sheet. And his plan is starting to work wonders.
Significant progress has been made. Hydrodec has signed up a strategic partner in the US and is currently expanding its plant capacity there to 65m litres a year. It has initiated plans to scale up its existing operations in Australia by combining its facilities with a local refining partner. It has rid itself of debt and secured funds for the next several years via a combined £24m placing and open offer (we've used forecast NAV and net cash figures in our table to reflect the yet-to-be-reported impact of this). It has signed an agreement with Essar Oil UK to first import recycled transformer oil from the US and then build a new transformer oil refining plant in Britain. And it has made a hugely important strategic acquisition in the UK to secure feedstock for a new type of oil recycling technology it hopes to develop for lubricant oils. Hydrodec expects to commission a pilot plant later this year to prove the technology is transferable, and expects to begin design and fabrication of a full plant as early as next year.
HYDRODEC (HYR) | ||||
|---|---|---|---|---|
| ORD PRICE: | 10.6p | MARKET VALUE: | £79m | |
| TOUCH: | 10.3-11p | 12-MONTH HIGH: | 14p | LOW: 8p |
| FWD DIVIDEND YIELD: | nil | FWD PE RATIO: | na | |
| NET ASSET VALUE: | 9¢*† | NET CASH: | $22m* | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢)* | Dividend per share (p)* |
|---|---|---|---|---|
| 2011 | 22.4 | -8.5 | -2.4 | nil |
| 2012 | 26.1 | -10.8 | -2.6 | nil |
| 2013* | 43.0 | -8.8 | -2.2 | nil |
| 2014* | 81.4 | -2.9 | -0.6 | nil |
| 2015* | 108 | 3.2 | 0.0 | nil |
| % change | +33 | - | - | - |
Normal market size: 20,000 Matched bargain trading Beta: 1.00 £1=$1.63 *Edinson Investment Research forecasts, adjusted EPS and PTP figures †Includes intangible assets of $19.1m, or 2¢ a share | ||||
This progress saw Hydrodec achieve positive underlying cash profits in September, October and November 2013. That was a real coup, but unfortunately an explosion in December at Hydrodec's plant in Canton, Ohio, threw a major wrench in Mr Smale's hopes to expand production this year. The accident was reportedly caused by a mechanical failure and production isn't expected back on line until the third quarter of this year, but it is hoped an ongoing insurance claim should mitigate resulted losses. A solution will be engineered into the repairs and the timeline to reach the 65m-litre-a-year expanded run rate by the end of 2014 still stands for now.
