One very strong theme in the climate-change debate is natural gas consumption, which is forecast to overtake oil by 2020. This has created a major new opportunity in liquefied natural gas (LNG) reliquefaction.
Where gas cannot be transported overland by pipeline, it is carried in LNG tankers at –160°C. The tankers are generally steam-powered – a small amount of heat leaks through the container walls of the insulated cargo tanks and is vented off to drive the steam turbines. Steam, however, is both inefficient and expensive.
Enter Hamworthy (HMY), which is riding the boom in LNG reliquefaction equipment. Hamworthy’s system allows the cargo boil off to be reliquified and the ship to be powered by much more efficient diesel engines. It is estimated that this produces operational and energy savings of around $5m (10%) per annum per ship. In addition, Hamworthy has now introduced a low-energy version of its market-leading equipment.
The company, which also sells inert-gas systems, pumps and waste-water systems, reported a strong set of final results to March on Tuesday. Pre-tax profits increased by 57% to £13.6m on turnover up by nearly 40% to £191m. Earnings per share, meanwhile, rose by 33% to 22.8p. Order intake for the year was a record £246m and the company’s order book increased by 30% to £268m. A medium-term buy at 530p.
Another strong theme is legislation designed to tackle packaging waste. EU Directive 94/62/CE, for example, seeks to reduce the impact of packaging waste on the environment by introducing recovery and recycling targets and encouraging reuse. With its reusable packaging, Polymer Logistics (POLL) is the right company, with the right product, just at a time when green legislation is pressurising retailers – a major source of packaging waste – to establish their green credentials.
Polymer Logistics, which has its headquarters in Holland, is a market leader in what is called ‘retail-ready packaging’. The major feature of this is that it functions as both the transport-storage container and the in-store display, and the company’s blue-chip client list includes leading retailers and suppliers in the UK, continental Europe and the US, such as Tesco, Coca Cola and Carrefour.
In the year to December 2006, Polymer Logistics produced results in line with market expectations, with pre-tax profits up 164% to £3.8m on revenues up 58% to £22.5m. In December, the company raised e22m at its initial public offering to fund expansion, primarily in Italy and the US. Polymer estimates that the US market offers it the potential to double its business and the overall market is growing at 8% to 10% a year.
The company begins 2007 with a strong order book and house broker Collins Stewart estimates that Polymer Logistics already has 70% revenue visibility for the current year. The broker forecasts diluted earnings per share of 12 cents in the 2007 financial year, which at 103.5p leaves the company on a reasonable p/e ratio of 12.7. Polymer Logistics is a buy.
Another theme – albeit a less intuitive one – is air-conditioning. Worthington Nicholls (WNG) is the UK’s leading installer and maintainer of air-conditioning equipment. The company anticipates a doubling of the UK market over the next seven years as a result of EU environmental legislation.
This requires an estimated one million air-conditioning units with the refrigerant R22 – containing ozone-destroying CFCs – to be replaced at an estimated installation cost in the UK alone of over £7bn. Existing systems using R22 (an estimated 70% of installations still in use) may only be serviced using new R22 until January 2010 and recycled R22 until January 2015. Current tax relief from the Government provides an incentive for businesses to upgrade, since a customer can claim back 100% tax against the new energy-efficient equipment that Worthington installs.
Since its flotation at 55p in June 2006, when it raised £7.5m, the firm has raised an additional £26m for bolt-on acquisitions. Over the last year, the company has progressively expanded from its core base in three- and four-star hotels into the five-star hotel sector, the commercial office sector and the high-street retail sector. In January, it secured its first continental European hotel contract and in April confirmed that current trading was strong.
In the year to September 2007, house broker BlueOar is looking for adjusted earnings per share of 5.8p. This is forecast to rise by 57% to 9.1p in the 2008 financial year, leaving Worthington on a prospective 2008 p/e ratio of 18.2. Worthington Nicholls is a medium-term buy at 165.75p.
Nigel Milton owns shares in Hamworthy and Polymer.