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Specialist Energy Group looks ahead with confidence

Published: 17:42 08 Jul 2010 AEST

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In a H1 trading statement, Specialist Energy Group (LON:SEGR) (SEG) told investors that its primary subsidiary, the Hayward Tyler Group, continues to make significant advances in underlying gross and operating margins, and the company's overall trading performance is in line with market expectations.

On an operational front, the niche engineering group has been making strong progress since it joined the AIM market in January through a reverse takeover - of Southbank UK Plc - into Nviro Cleantech. With an additional £14m of new business since January, and further contract wins expected from China and India, SEG said it continues to look to the future with confidence.

With the new business, added since the turn of the year, the company’s order book now stands at over £26m, that is after it successfully shipped 28 large supercritical and subcritical boiler circulating pumps - to China, India and the Middle East. According to SEG, the shipments demonstrate the continued strength of its business in Asia.

Furthermore, in a first for the subsidiary, Hayward Tyler delivered four synthetic gasification (Syngas) cooler pumps for “one of the largest Syngas project in the world”. Syngas is a synthetic gas mixture containing carbon monoxide and hydrogen, as such it is combustible and its often used as a fuel source or as an intermediate for the production of other chemicals.

“Even in this prolonged global downturn the trading performance of our business continues to improve inline with expectations ... it is encouraging to be pushing ahead in our core markets and to demonstrate the strong fundamentals of the Hayward Tyler business”, SEG chief executive Ewan Lloyd-Baker said.

“Whilst the macro environment remains challenging, it has been encouraging to see Hayward Tyler ship a high number of original equipment units in the first half and the UK services business enjoyed a record order intake during the period”.  The company noted that the high shipment levels have reduced the order book from its year-end level of £30.1m. 

According to SEG, Hayward Tyler continues to enjoy success expediting pumps and spare parts to the nuclear industry in both power and defence sectors. At its main manufacturing site in the UK, it continues to invest in the testing facility, as well as further patent applications in the fields of bearing technology, glanding techniques and deep submersible technology.

Hayward Tyler is one of the oldest engineering companies in the United Kingdom.  It manufactures and services mission critical pumps and motors - primarily for power stations – and it has a worldwide market share of around 60%.

Aside from Hayward Tyler, SEG updated investors on its other units including the legacy technology, inherited from Nviro Cleantech. The company highlighted that it has significantly scaled down the operations of the Nviro technologies portfolio, and it continues to pursue other options to monetise them.


Additionally, in regards to the Vertus Technologies subsidiary - the ‘clean-coal’ pre-treatment business - SEG confirmed that it has reached an agreement in principle to dispose of certain physical assets, to realise approximately US$450,000 in the current financial year.

The company said that it remains the owner of the intellectual property rights and it will continue to pursue the opportunities to license the technology. However, should the licensing discussions fail to reach a “satisfactory conclusion” SEG intends to cease development of the Vertus technology.

“With a growing pipeline of projects the continuing development of the Hayward Tyler business coupled with the planned exit from the Nviro technologies means that our focus will remain on the long term profitable growth of our core businesses in expanding markets”, Lloyd-Baker added.

The interim results are expected to be published in September 2010.
Yesterday, SEG announced that appointment of Victor Emerson, a former senior adviser to the Bank of England and the FSA, as non-executive director and chairman of the remuneration committee.

Emerson started his career at British Steel Corporation, from which he moved to De La Rue Group (LON:DLAR) and Bank of America (NYSE:BAC). Emerson has since held a number of senior roles in the banking sector, such as director and general manager banking at Nomura Bank International and more recently, various senior management roles at Standard Chartered Bank (LON:STAN), where he was a member of the SCB Group management committee and group head of corporate and institutional banking.

Emerson currently serves as non-exec at other companies, including property and casualty insurance company ACE European Group Limited, where he is also the chairman of the audit committee, and Fairfield Energy. Emerson’s other occupations include business adviser to Pakistani conglomerate House of Habib and membership of the faculty of management studies at Oxford University.

In its Morning Note to investors, London-based stockbroker Astaire Securities said the news from SEG continues to be encouraging, highlighting Hayward Tyler’s margin improvements - as cost control and terms of trade are improved. The broker said the business is taking “a more discerning approach to order acceptance is employed”. According to Astaire, a key task of management was to “ensure that unprofitable or only marginally profitable contracts were not accepted”.

In relation to the non-core businesses, Astaire said: “The sale of the Vertus assets is also an unexpected boon ... no value had been ascribed to them in market forecasts. The scaling down of the former Nviro Technologies activities will add further to results for the year."

Meanwhile in a more detailed analysis note, Fairfax Securities emphasised that SEG’s valuation lags its profit recovery; that the Hayward Taylor business has a long established international market presence; and the management team has successfully moved this formerly loss making business, into one that is now growing profits.

According to Fairfax, SEG looks comfortably positioned to meet the brokers full-year forecasts. “A P/E of 4.7x in our view, distinctly discounts the Groups’ growing profits, international brand and opportunities in the energy generation markets.” The stockbroker highlights that given the upbeat trading statement, SEG’s share price now appears to be behind events.

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