City analysts see strong growth ahead for Specialist Energy Group after new funding

City analysts believe that Specialist Energy Group (LON:SEGR) shares are significantly undervalued and the company is set for above-average growth.

A number of analysts published research on SEG after it announced a new £5 million fundraising this morning. Both finnCap and Northland Capital gave upbeat views on the AIM-listed engineering firm.

SEG is issuing up to 10.4 million new shares to new and existing investors at 48 pence each.

The cash will support SEG’s growing exports business to India, as well as funding the expansion of its US operation and allowing greater flexibility to fund new orders. 

"We are delighted by the strong interest that has been shown by new and existing institutional investors in the placing,” chairman John May said.

“Not only does it allow the group to continue expanding but it clearly strengthens our balance sheet and should facilitate the move to more flexible banking arrangements."

In a note to clients finnCap analyst David Buxton said SEG is an undervalued play in late-cycle, traditional and nuclear power generation. 

The analyst highlighted that the group has strong overseas sales prospects, particularly in India and China, and its gross margins are gradually improving. 

“The valuation stands at a significant discount to most other providers of power generation equipment and subsea motors,” Buxton said.

Buxton believes that SEG’s primary business - the Hayward Tyler subsidiary – is set to benefit from opportunities in both emerging and mature markets.

In China and India the group can benefit as the nations build new nuclear power stations while ageing western thermal and nuclear power stations are in need to be replaced or overhauled.

“We see considerable opportunities in the energy sectors for the Hayward Tyler subsidiary over the next few years,” Buxton said.

He adds: “The shares responded to decent interims and the 10% Indian stake (McNally Bharat Engineering is a large shareholder), but continue to trade at a significant discount to the peer group.”

Northland Capital - formerly Astaire Securities - analyst Simon Miller emphasised that the new funds would help support SEG’s efforts to expand the business.

The analyst noted that a potential new site for its North American nuclear-focused operations has now been identified, and once complete and ‘stamped’ it could almost double Hayward Tyler's current footprint.

“The expansion of the nuclear focused business is also timely,” Miller said, “as a greater reliance on nuclear power is increasingly seen as part of the solution to both energy security and climate change.”

He adds: “The company has been steadily improving revenues and margins through the course of the year.” 

Specialist Energy was formed in January 2010 when Southbank UK reversed into AIM-listed shell Nviro Cleantech, however its principle asset, the wholly-owned Hayward Tyler business has been around for much longer.

Hayward Tyler’s heritage spans way back to 1815. In its early existence it manufactured plumbing equipment before it began to specialise in submersible motors and pumps before the first world war. 

It designs and manufactures mission critical components to the power generation and offshore oil and gas sectors. 

Early this month SEG announced that Hayward Tyler had won new orders worth almost £3 million in India and China through Bharat Heavy Electricals Ltd and Shanghai Boiler Works Ltd.