segroupplc.com
Specialist Energy Group plc (SEG plc) is a niche engineering and manufacturing group. Through its main operating subsidiary Hayward Tyler Group Limited, the worldwide market leaders in boiler circulating pumps, its focus is on the energy sector.
Specialist Energy Group: share price fall means opportunity, says broker
The recent drop in the share price of power station pump manufacturer Specialist Energy Group (LON:SEGR) represents a buying opportunity, according to a research note released today from the firm’s house broker finnCap.
Since SEG announced in mid-September that it was no longer in discussions regarding a potential takeover, as well as interim results that revealed a weak first half, shares in the firm have fallen from around 60 pence each to under 35 pence.
finnCap believes that this makes the firm more attractively valued and will provide investors with an opportunity for appreciation over the next year as it is expected to see a pick-up in activity and the return of “more normal ordering patterns”.
Turnover during the first half was down 20 per cent, mainly due to the manufacturing division experiencing quality control problems on specific cast parts sourced from a supplier. But the broker noted that this problem has now been rectified, while the strength of SEG’s services operation and shift in product mix has boosted group margins.
Also, first half revenues in service activities saw some slight, indirect impact from the Fukushima disaster and “these should be resolved in the second half”.
Meanwhile, finnCap noted that a better second half has been forecast with order intake up 20 per cent to £16.5 million, “which provides the group with some decent future visibility”. The broker also sees a hiatus in Chinese order placement as being temporary, given China’s continuing need for new power generation.
“Following the downgrade on this year’s forecasts (as a result of the issues mentioned) the rating for the current year appears fair,” said finnCap in its note. “However, we look to next year to see the improved levels of trading and a return to normality to provide an attractive rating of 5.8 times. This gives plenty of upside potential to the shares over the next year.”
finnCap estimates that SEG will make sales of £36 million for this year, increasing to £38 million in 2012. Pre-tax profit is expected to come in at £2.2 million, increasing to £3.1 million next year, while earnings per share is estimated at 3.4 pence and 5.9 pence for 2011 and 2012 respectively.
