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Additional	Information
Market:	AIM
Sector:	Manufacturing
Epic:	SEGR
News:	Latest news
Web Site:	Specialist Energy Group
Other Articles:	29-07-201008-07-201007-07-2010

Specialist Energy Group Lays Out a Compelling Blueprint for Growth

The trading statement from Specialist Energy Group (LON:SEGR) earlier this month marked something of a watershed for the firm, which has endured a difficult start to life as a stock market listed company.

It was boss Ewan Lloyd-Baker’s first opportunity to talk about the future of the business and its progress so far this year as a now-profitable specialist engineering company.

SEG is the listed parent of Hayward Tyler, the maker of boiler circulating pumps (BCPs) and one of Britain’s oldest engineers.

It is also a very rare commodity – an export success story. It has more than 60 per cent of the installed market for BCPs, which are fitted in power stations all over the world and are used to drive water around boiler plants.

Not that any of this is reflected in the share price, which has fallen 28p, or more than 40 per cent to 40p since SEG listed on AIM in January.

It has been a difficult transition to the public market, complicated slightly by the fact that Lloyd-Baker decided to reverse his company Southbank into a listed shell Nviro Cleantech rather than going for a straight float.

Perversely this was a catalyst for some sustained selling activity.

The original Nviro investors beat a path to the exit - and so did some of the backers of Lloyd-Baker’s Southbank, who financed the 2006 acquisition of Hayward Tyler from venture capitalist 3i.

Add to that some fairly dour results announcements, which brought the accounts of Nviro and Southbank into line, and you can see why some followers of Specialist Energy Group might have found it a bit of a turn-off.

But the July 8 trading statement showed that management has dealt with the legacy issues of the listing and more importantly that HT is on course to meet profit forecasts outlined at the time of listing.

It is set to post EBITDA of £4.4 million, a target that is likely to be confirmed when SEG delivers its interim figures in mid-September.

It also offers solid proof that the turnaround programme initiated three years ago when Lloyd-Baker brought in a totally new management team is gaining traction.

HT is building on the market niche carved out in the power generation markets and finding alternative uses for the company’s wet wound motors, which could have applications in the oil and renewable energy industries. They are already being used by the North American nuclear sector.

However the firm’s near-term prospects are still dominated by the power market – and the fundamentals here are strong despite the move to greener methods of generation.

That’s because the exponential growth of China and India and their voracious hunger for electricity far outweighs the slow demise of traditional power stations here in the West.

Of course none of this potential is captured in the current share price, which values SEG at around five times predicted earnings.

That is less than half the sector average and well behind some firms in similar niche positions.

Lloyd-Baker is hoping the discount will unwind a little once investors become more familiar with the SEG story and the outlook for Hayward Tyler.

However the growth of HT is just one part of the story.

Lloyd-Baker sees the BCP business as just one leg of a group that at some point could turn over between £200 and £300 million a year.

“My background is corporate turnaround and corporate finance,” the SEG chief executive told Proactiveinvestors. 
“What I have done is get in place a good management team that punches above its weight and is capable of not only improving the underlying performance of the business, but continuing on that journey and taking HT forward.”

Having got this far with the Hayward Tyler business and having raised £4 million at the time of the reverse takeover from institutions such as F&C, Henderson and the British Airways pension fund, it is debatable whether SEG will use the equity markets to fund its ambitions given the current weakness of the share prices.

Lloyd-Baker points says: “This is not just about the Hayward Tyler business, but the bigger picture,  Our longer term story is to build a group which is focused 50 per  cent on power generation and 50 per cent oil and gas and emulate the success of some our bigger rivals.

Only time will tell whether Lloyd-Baker is able to emulate engineering success stories such as Halma, Weir and Melrose which are now fixtures in the FTSE 250, but having improved the Hayward Tyler business the early signs are encouraging.

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