Better pricing and increased sales of transformer oil helped Hydrodec PLC (LON:HYR) post a maiden underlying profit in its latest half year.
Hydrodec re-refines contaminated oil at plants in Australia and Ohio to make transformer oil used for electricity generation.
READ: Hydrodec shares soar as it heads back in the black
Refined transformer oil accounted for 52% of the sales this time, up from 40% in the comparable half year, while interim revenues rose by 11% to US$9mln even though volumes overall dropped by 10%.
Both the US and Australian operation made an underlying profit, with the improvement continuing into the second half, said Chris Ellis, chief executive.
August was the best month for the US arm since a plant refurbishment in 2015, he added, while a new ‘take or pay’ initiative should see a 'much improved' contribution from Australia.
Ellis added: “Our key objective during the rest of the year is to strengthen margins, grow market share and seek to leverage the recent carbon credit agreement signed in the US, whilst continuing to focus on cost reduction and efficiencies.
“Volumes and margins in Q3 to date have shown further significant improvements on Q2 and both operations are expected to generate substantially stronger positive EBITDA in Q3."
At the underlying profit level, there was a US$1.15mln swing to a profit of US$26,000 as overheads were cut by US$500,000. Pre-tax losses narrowed by 26% to £2.68mln.
A question of feedstock
Broker Canaccord said the principal constraint on Hydrodec is the availability of feedstock: its business is the re-refining of used transformer oil, the availability of which tends to increase as its value goes up.
"With oil looking more stable above $55/bl, we believe that volumes in its main plant (at Canton, Ohio) are likely to increase through the second half of the year, with some potential for a release of pent-up volume stored during the weakest period of oil prices. The strong August result adds confidence in this."
The broker expects underlying profit of just under $2mln for the full year largely driven by increased margins and some improvement in volumes.
Buy with a target price of 3p is its view.