Hayward Tyler tipped to surge 50%

Hayward Tyler (HAYT) has been a star performer over the past two years, but the pumps and motors manufacturer has plenty more in the locker, it seems. After bagging £10 million of contracts last month, the level of new orders this half- year has beaten internal targets and there's a good chance of an earnings surprise at the full-year results.

"Given the visibility we now have, and the ongoing positive outlook for new orders, the board is confident in the group's ability to at least achieve current market expectations for the full year," said chief executive Ewan Lloyd-Baker.

Broker finnCap currently expects adjusted pre-tax profit of £4.3 million in the year to March 2015, giving adjusted earnings per share (EPS) of 6.7p, up from £4 million and 6.5p, respectively last year. But even it admits that "positive trading momentum suggests that forecasts may have upside potential."

They certainly do. Management is targeting annual earnings growth of 10%, more than finnCap, so there is a chance of a surprise here. But even on the broker's conservative estimates, Hayward shares trade on a modest forward price/earnings (P/E) ratio of 12.

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Hayward sells boiler circulating pumps (BCP) to power plants and ultra-durable electric motors to oil companies - both are high growth markets. September's orders included over £7 million of spares for Korea Hydro and Nuclear Power, canned motor pumps for Sellafield nuclear power station, aftermarket orders in India and Argentina, and new unit wins for new-build conventional power stations in China, collectively totalling about £2 million.

Hayward will ship most of this over the next 12 months and about half by the end of the current financial year. We'll hear more alongside interim results on 11 November.

At 77p, Hayward shares have slipped back from a high of 93p mid-summer, "without justification," says finncap. It reckons the current multiple "offers plenty of upside to the shares and reinforces our positive support of the shares."

FinnCap's target price of 113p implies potential upside of almost 50%, and with strong technical support at 72p (see chart), the investment case certainly looks attractive.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.