Specialist Energy Group says it has held discussions with new Indian investor

Specialist Energy Group (LON:SEGR) chief executive Ewan Lloyd-Baker says he has made contact with McNally Bharat Engineering (MBE), the company’s new 10.79 per cent shareholder, but he says it is too early say whether the Indian civil engineer plans to increase its stake.

“We have had discussions and they will be ongoing as they are a potential strategic partner and investor,” he told Proactive Investors this morning.

“India is one of our big export markets so this (stake-building) is not a great surprise to us. It is too early to say what will happen next....but it will be very interesting to see what happens.”

Lloyd-Baker was speaking after the release of a strong set of interim figures, which saw the company post operating profits of £1.3 million, up from £40,000 a year earlier. Sales grew by 5 per cent to £18.6 million.

The company owns and runs Luton-based Hayward Tyler, one of Britain’s oldest engineering companies.

HT has cornered the market in boiler circulating pumps, which are installed in power stations and are a critical part of the generation plant.

The group 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 it is the company’s position as market leader in supplying these BCPs that has no doubt piqued the interest of MBE, which has been involved in some major power plant projects on sub-continent.

“They have a great presence in India and that is one of our key markets,” Lloyd-Baker said.
“As you’d expect we are exploring all sorts of joint venture and strategic relationships out there.”

His comments hint at perhaps other interest out there from potential partners, though when pushed the SEG chief executive remained tight lipped on the subject.

Instead, Lloyd-Baker was keen to focus on the fundamentals of SEG, where he gave a guardedly optimistic assessment of prospects.

Order intake at the end of June was £13.8 million giving a total order book of £27.3 million.
At the same time net debt fell by £3.2 million to £10.5 million, while the company’s gross profit margins rose to 32.3 per cent from 30.5 per cent.

“We have a strong order book and visibility is strong,” the SEG chief executive said. “And while the market remains challenging we do see further scope for increasing operating margins. We are currently trading in line for the full-year.”

Analysts expect the company to post EBITDA of £4.4 million for the 12 months. Simon Miller, of City stockbroker Astaire, is impressed with the momentum the specialist engineering group is building.

“It made good progress in the first half, with progress on all fronts,” he said.

“The focus continues to be on Hayward Tyler with its strong position in pumps and motors for the power generation and oil and gas markets.

“Management has concentrated on improving gross margins and ensuring that a more rigorous approach to tendering is taken and this is paying off and should continue to do so.
“Specialist Energy Group has a strong market position in coal fired power stations and continues to benefit from high activity levels in China and India.

“It is also seeing some new order wins in the USA for the nuclear.”

The company listed on the market when Lloyd-Baker reversed 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.

This saw the share price go as low as 31p. Today the stock is trading at 48.3p, up 1.3p on the day, though in the past month the stock has advanced a stellar 28 per cent.