As my previous post indicates you are right eddie. Hanover know a bargain when they see one and this is certainly a bargain price. They also know how to maximise the value of a company and I have invested in other companies run by Matthew Peacock. The management of Hydro and Hanover have correctly calculated that they can make more money for themselves by growing Hydro as a private company rather then sharing the spoils with the current shareholders. Great shame there are no other bidders as I am sure Hanover would pay more if necessary.
Board very quiet on this announcement does no one feel that this is an offer which undervalues the company by quite a margin.
I always feel suspicious when loan notes are offered.
How would Hanover B.fare if someone else entered the fray and raised the stakes.
More comments would be welcome.
I sincerely hope that the company would not consider an offer at anywhere near the current share price. Looking at the growth, p/e, balance sheet and the expanding flood prevention sector, Hydro should surely be worth at least 50% more than the current share price to an acquirer. My personal preference would be for Hanover to go away and let Hydro's current shareholders enjoy the benefits of the company's growth.
Another acquisition announced today, this time it's Hydro-Logic. Like the last acquisition, the company has failed to say whether this is likely to be accretive to earnings or even whether Hydro-Logic was profit making. It might be a brilliant acquisition or it might be an awful one but without a bit more financial information how are shareholders possibly meant to know?
I came across this company just after the market closed before Christmas so could not buy and plan to wait now as it is not a high profile company and the share price might fall back a little after the furore over the Christmas flooding is forgotten by investors, though I may be wrong about this if bigger investors get involved. The problem I have with this company is the lack of a meaningful stake by management/directors, in fact they appear to own hardly any shares at all which I take as a vote of no confidence. Sheila Lamb, a former director, appears to have a stake of about £2M but as far as I am aware she is not currently a director. In contrast the salary of CEO Ian Jennings in 2014 of £205,000 (now £220,00) and total renumeration of £362,000 looks quite generous when compared to the company's net profit of £980,000 in 2014. Bearing in mind that the company is well established in its niche has a high level of technical expertise, the profit margins are unimpressive and the ROCE, which has been between 9 and 15% over the past few years, is nothing special. Perhaps a weakness of the company is that relatively little of the company's revenues are recurring over a long period. As I am a long term investor, I look out for these kind of fundamental qualities which make a company attractive and Hydro International is unexceptional in this respect. However, if I see a big director/management stake being accumulated than I will join them.
Watching the share-price's rise over the last few days, it looks ot me as if investors seem to hope that even if David Cameron is achieving only half of what he promised to tackle flooding in several regions of the UK, there could be some contracts granted to HYDRO in order to fulfil these promises. It even seems logical to me Hydro's management should be pro-active and put it self on the forefront by suggesting solutions for this recurring and devastating problem. After years of stagnation this could or should be Hydro's bumper-year or am I too hopefull too.
nice to see HYD taking an active business development action.
of course with the details we have no idea as to the commercial benefits,
but reading between the lines it seems a fair price to pay given that the price is flexed to actual sales and we need to trust mgt that they know the products in their industry.
There is a good mgt team here , in a growth industry, and a few more of these sorts of in-fill deals would start to give HYD some momentum.
" HYDRO International PLC. (LSE:HYD) is part of the Industrial Engineering Sector (Posh name, FTSE:NMX2750) and near term, we're not entirely expecting fireworks, Currently at 8145, the sector as a whole is seen as weakening to 7700 which ..."
Informed investors will know that there is a 5-year cyclical spending process in the Water business called AMP; we are ending AMP5 soon and waiting on OfWat approval for AMP6 investments for each WaterCo for the next 5 years. This inevitably means that there are peaks and troughs in expenditure at the middle and start/end of each cycle respecively. So we are now entering a downturn period for CapEx (normally). It looks like though that the Govt is seeing sense, after 5 of these cycles causing feast&famine, and allowing companies some leeway in extending jobs and more especially bringing AMP6 projects forward if OfWat has approved. This should be (very) good news for Hydro's products, as it will smoothe the cyclical aspects of their UK sales. Also (article by their Sales Manager in WWT magazine this month) there is also a move towards 'whole life costing' which allows for (bigger) upfront CapEx if the scheme benefits swing into the black over the lifetime of the equipment/installation. Still to be approved, but HM Treasury-led so main stumbling block to change is removed. Also good news! AM a long-term holder of HYD stock, and will continue, but think i might add a bit more.
Hydro International (LON:HYD) are a company all about water; they design and retail (outsourcing manufacturing) a number of products aimed at the controlling or cleaning of water, and sell them around the world - though overwhelmingly in UK and US markets. Here's the quaintly named 'Hydro Town', if you fancy a more detailed idea of exactly what it is they provide; and there's a video on their homepage detailing a flood-prevention scheme in Glasgow which shows one of their products. At first glance, then, I surmise two things about the markets in which operate. Firstly; I suspect, rather like Yougov and unlike Vislink, that the recession has seen a significant slowdown in demand. Glasgow City Council commissioned the flood prevention project, and it looks like U.S. municipalities commission much of their work over there. Rightly or wrongly, centralised capex has been tightened quite considerably given the fiscal situation recently. The commercial sector isn't exactly brimming with confidence, either - corporates always defer investment when things get ropey, and the sort of products Hydro provide strike me as being distinctly 'long-term benefit' as opposed to short term cost cutting.
Over a decent time period, though, the company's been on the growth path - at least the last decade. The recession, while not plunging the company into the abyss of losses, saw what would probably be considered more of a stabilisation - net profits have centred around £1.6m for the last 6 years, in a reasonably tight band when it comes to the noisy world of earnings. The company is interesting from two perspectives, then. At first glance, if we were to look at a metric like EV/EBIT, the company is rather cheap indeed; the company has cash on book equivalent to about a quarter of its market cap, and a low level of borrowing. Net cash as of the interims was about £3m, though the cash figures are quite volatile. On the EBIT side of the equation, there's also a slightly favourable adjustment we can make. Much like last time, with Yougov - see the good discussion in the comments section about this, though - Hydro amortise some acquired assets at a cost of £0.2m on the income statement. I think this cost satisfies an accounting need but not an economic truth, so I exclude it. Either way - the EV/EBIT multiple is something like 5 on the basis I've outlined above.
I should say I don't think stripping cash out of the companies enterprise value is particularly wise here; cash should only be excluded if it's excess to the company's operational requirements - something I'm not sure is entirely true in Hydro's case. I can never be sure of that, and some of the cash probably is excess, but at least some seems to be required to satisfy seasonal working capital requirements. Timing differences can be punitive for small companies - their contracts are worth several millions.
Hydro is more interesting when viewed from the lens that, unsurprisingly, the company wants to be viewed with. From their annual report:
Hydro delivers high value-added products and supporting services to specialised global water markets where technology and application know-how provide the opportunity to generate growth and sustain high returns through strong competitive advantage. Markets typically have high barriers to entry and demand supported by long-term resilient growth drivers.
The company has historically earned a high return on capital, even through the recession, though the trend has been distinctly downward since 2008. To put it in perspective, if the company earned its average post tax return on capital over the last 9 years on its current capital base, assuming no finance costs - which is reasonable given the net cash vs. borrowings situation - we're looking at a earnings yie
It does seem odd, but their main customers must still be the water companies and we are coming up to AMP6 cycle and the usual downturn as the final year or two of the 5-year investment programme under AMP5 feathers out, and no-one spends money again until OFWAT give the AMP6 thumbs-up. Whatever the Government reviews of asset planning say..
IMHO a strong contender for long-term UK & Overseas environmental improvement investment, and today is a good chance to 'buy on weakness'. D&C
Quick look at the news section would have saved me a message.
Basically saying that new orders are not sufficient to replace the larger orders which are to be completed soon. i.e. we are behind the curve in obtaining new orders.
Also CEO stepping down - but I don't see this as so important as he is remaining within the company.
If anything some fresh blood might give the company some renewed momentum.
Generally, with a slow construction sector Hydro will struggle to ramp up orders.
However, I am happy to keep faith with gradual increase in eps in the long term just because they have products which in a ever more unreliable climate are in demand. I hope!
Only a smallish contract but nice to see management branching out into new regions.
Not only widens the market but also adds variety to any regulators which might be influencing the award of contracts.
Happy to hold onto this share, I bought in many years ago and I believe the management are competent and reassuringly cautious in their approach. Steady as she goes....
Any company with a ROCE of +30% and increasing (projected) revenue should at least be quoted at a Price to revenue of 1. This is the ratio someone would pay if he would make an offer for HYDRO. So IMHO even at this SP of 145, HYDRO is undervalued by at least 40%.
Hydro International reported 2010 figures well above expectations.
The stormwater and wastewater equipment suppliers revenues edged up by 3% to £28.2m, while pre-tax profit was one-third higher at £2.38m. Excluding amortisation and exceptionals, profit improved from £1.93m to £2.64m. Net cash was £4.07m, thanks to strong cash generation last year. The dividend was increased by 10% to 3.3p a share.
UK revenues were lower last year but there was growth in the US. One UK customer accounted for £4.4m of revenues. A new distribution agreement has enabled Hydros stormwater business to enter the Mexican market.
The UK should be stronger this year because spending is building up following the start of AMP5, the latest five year investment cycle. Contracts have already been won. The UK Flood & Water Management Act 2010 and EU Water Framework Directive provide legislative drivers for demand. Water and flooding issues will help to offset government spending cuts in the UK.
There is more growth to come in the US and the Middle East. Management wants to sell more products through its US distribution network.
House broker Arden forecasts a 2011 profit of £2.52m, with a rise to £2.8m in 2012. If further contracts are won there could be room for upgrades.......
Looks good to me, and to all those who have seen all that flooding this winter. Maybe, Australia is the place to be for Hydro.
Now we know why Jonathan Hart bought himself some 310.000 shares two weeks ago. Better informed than we were... I gladly would have done the same. Please call me, sorry... us next time Jonathan when you know there is a big contract to come.
Just bought in here as a solid replacement for my velo holding.
Impressed with how this still performed even when housing construction took a dive. Their other streams seem to have done more than keep them alive, and these in conduction with the rehabilititation of construction make this set for a good, safe recovery.
Water control and treatment products provider Hydro International has won a major contract, the largest project in its history in fact, for its Zickert Sludge Scraper technology.
The £15.6m contract with GBM, a joint venture between Galliford Try, Mott MacDonald and Biwater Treatment, will allow Hydro to showcase the benefits of the aforementioned technology, an innovative sludge transportation system' designed for use in sedimentation tanks that boasts significant cost advantages over conventional systems.
This win is a highly encouraging one for Hydro, which has weathered recessionary storms rather well, having unveiled creditable results for the first half of 2010 that demonstrated its diversity in terms of sector and geography. Pre-tax profits improved to £600,000 (2009: £500,000), despite a 22% decline in turnover to £11.1m during a half characterised by slow order intake, with the UK and US housing and construction sectors emerging but slowly from recession.
Nevertheless, Hydro still enjoyed robust wastewater orders in the US as well as international markets such as the Middle East and profits improved on the strength of a favourable product mix as well as careful management of contracts and costs. Closing the half with orders increased 48% on the previous half-year at £13.9m, Hydro highlighted an improvement in second quarter orders, among them a £3.95m Zickert Scraper system contract.
Set to benefit from the growing global requirement for clean water, Hydro is strongly positioned on numerous UK wastewater projects and should see profits flow from emerging regulation on the stormwater side of its business.
Despite reaching a 52-week high of 110p, we believe Hydros dividend paying shares, strongly recommended by Growth Company Investor at 99p earlier this year, should have further to go. So sit tight.
Used to hold this one four to five years ago, and have watched the decline in share price without significant earnings or profitability falls. Interim statement could have been worse in the current construction and funding climate IMHO, so i've just reinvested. Expecting 100p on the timed board and was warmly surprised to get in at 92p, just hope that wasn't the start of an MM slide to find more buyers. And i should have waited; anyway, tucked away for the next UK house Flood report (oh. that seems to be tomorrow, according to the weather reports...!)
A major development just in - it seems we have a second broker covering HYD! This is a first....and Fairfax (for it is they) go for even higher forecasts than the house broker, with 14.1p EPS this year and 15.1p EPS next year.
Plus a 3.4p divi this year and 3.7p divi next.
Given that H1 should be OK but no more, such confidence is reassuring for the short-term - though I have no doubt that medium and long-term HYD will be a one-bagger from here at minimum.
Cheers Dr VQ. Was considering buying in here but opted for another steady stock - ASTO (down after buying in!). I'll do a bit more research in to this / its competitors but they seem to be ticking along reasonably well.
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