■ Finances sorted
■ Better outlook at Boeing and Airbus
■ Order book improving
■ Key strength as composites tool maker
■ Airlines market could stay weak
■ Capital intensive
IC Risk rating
Tip style: Growth
Shares in aerospace toolmaker Hampson Industries have had a turbulent ride over the past six months. Mostly this was because of concerns that delays to major aircraft projects, such as the notoriously problematic Boeing 787, could combine with an industry downturn to put Hampson's balance sheet under pressure. However, with a £56m fund raising completed, the group looks in decent financial shape and the shares look good for patient investors.
A big reason for our buy tip is clearly February's placing and open offer. With the help of that capital injection, City analysts reckon that Hampson's net debt - £145m at the start of the year - will be £90m by the year end; and the company has no refinancing obligations now until May 2013. The requirement for working capital as a percentage of sales should also fall as an investment programme to bring the composites tools side of the business up to speed is now largely complete. In addition, as a trading update last month showed, the order book for composites tools has steadily improved and is up 25 per cent from 2009's low point.
But the biggest lift for Hampson - indeed for the aerospace sector - is that Boeing and Airbus finally seem to be getting on top of the delays that have hampered their key projects, respectively, the 787 Dreamliner and the A380 super jumbo. The 787 completed its first flight at the end of last year, several months late because of a machinists' strike at Boeing. Airbus has had its own manufacturing problems, but it plans to maintain the production rate of A380s this year and expects to deliver 20 aircraft to customers.
|ORD PRICE:||68p||MARKET VALUE:||£189m|
|DIVIDEND YIELD:||2.5%||PE RATIO:||7|
|NET ASSET VALUE:||See text||NET DEBT:||See text|
|Year to 31 Mar||Turnover (£m)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
Matched Bargain Trading
* Investec forecasts (Earnings not comparable with earlier years)
The major manufacturers have both said they are seeing a "progressive recovery" in orders, with far fewer cancellations than were expected at the height of the credit crunch. In addition, airline operators are increasingly confirming orders. For example, United Airlines, considered a bellwether in these matters, recently confirmed the purchase of 25 more Airbus planes. The extra activity should eventually filter through to the likes of Hampson further down the supply chain.
It is also easy to forget in the financial maelstrom of the past couple of years how important composite materials technology will be for aerospace in the coming years. The 787 is the first plane to use large amounts of composites in its primary air frame and Boeing has had to overcome considerable technical challenges even to get the plane in the air. Stockbroker Investec estimates that composites made up around $1.6bn of total aerospace sales in 2009, down 24 per cent on the $2.1bn highs seen in 2008. But it reckons sales will at least return to this higher level in the coming years and Hampson remains the world's only significant maker of composite tooling.