Brokers Hargreave Hale gave the following Valuation for HMY

VALUATION
The nearest comparisons to this Group are Sondex, trading on a current year multiple of 14 and Weir Group which typically trades on multiples of 12 plus. We would argue that Hamworthys prospects are brighter than both these companies in view of the strong order book and the global positioning. Fully taxed earnings of 13p this year and 16.5 p for the 2005/6 end March, suggests a current year PE of 9.9x and a prospective PE of 7.8x. There is a prospective yield in excess of 4%. If trading on a similar PER to Sondex the shares would be valued at in excess of 180p. We would argue that a premium to Sondex is justifiable, in particular because of the potential ramp up to sales as a result of the new product pipeline now gaining client acceptance in what is in any event one of the fastest growing markets in the world.

"Shares" Article relating to Hamworthy (HMY) posted below for info.

With a following wind these shares should double over the next year or so.

Some catty folk in the City say the flotation last month by Collins Stewart
could have been handled better, i.e. at a higher price. It was certainly over
subscribed but the rating is half that of similar oil sector service companies
including Sondex.

Yup cheers Frampton for the post.

cheers GF.

Added again this morning, looks poised to break upwards.

cheers GF.

GF, probably got another day, possibly two at these levels and we should then start to see the price move up again. Good timing on the top up.

J.

Yes a bit frustrating Jason, but patience is the name of the game.

cheers GF.

GF, the last few trades bode well for Monday, all buys today so hopefully we have settled back between the bollinger bands of the chart without losing anything from the share price and can now start moving up again. I hope!

As promised last week, I have finally got my hands on the full article from brokers Hargreave Hale.


HAMWORTHY, an unusual Globalizing Gas play.

One of the more interesting aspects of the Shell reserves estimate row is the light it cast on the Groups huge reserves of gas.
In the last decade, energy companies have drilled four times as many oil exploration wells as gas wells. However they discovered far more gas than oil, finding enough gas to last the world no less than 60 years at current consumption rates, representing a 50% longer life span than the worlds oil fields. The problem, of course, was that most of the gas was found in areas too remote from the consumer and therefore proved uneconomic.
This is now changing as the gas price increases in line with the oil price and as the technique of turning natural gas into a transportable state becomes both more sophisticated and cheaper.
It now looks increasingly likely that within the next decade, gas will develop into a global market with global pricing, as networks are linked up in national markets, and these national markets are themselves linked up globally as a result of the expansion of an LNG (liquid natural gas) tanker fleet and of the building of re gasification terminals throughout the world.
The head of Shells exploration and development has predicted that gas production worldwide will soon overtake oil production and that Shell will be transformed from being an oil and gas company to being a gas and oil company.
He is quoted as saying : We are on the brink of a whole new LNG growth boom. The example he gives is that LNG imports into the US accounts for roughly 1% of total US natural gas supplies at present but that this is likely to grow to 15% by 2025.
Centricas recently announced LNG deal makes interesting reading. Centrica has benefited in recent years from a combination of lower wholesale prices and fixed or gently rising retail prices, using a combination of a 35% equity hedge at Morecombe Bay, intelligent trading and long term contract plays. Given the rise in the gas and oil price the management seems to be recognising that it could now be vulnerable to a combination of lower margins and customer losses.
Centrica has recently signed a huge liquified gas agreement with Petronas, the Malaysian energy conglomerate. Petronas will supply around 4 billion of liquified gas from North Africa and the Far East. Convoys of ships will be delivering gas chilled to minus 160 degrees centigrade October 2007. Centrica is buying 45 billion cubic metres of gas over the lifetime of the contract, enough to supply gas to every household in the country for a year. Centrica is also planning to take a stake in a 3bn joint venture to transport gas from Turkmenistan.
In order to accommodate this growth, terminals, tankers and pipelines have to be built. Terminals are under construction in the UK at Milford Haven and the Isle of Grain on the Thames Estuary and this is being replicated throughout the world, most notably at a very large terminal in Qatar which is seeking to develop its economy by acting as a staging post between the Far East and Europe.
In the US, four rival consortia, one financed by Warren Buffet, are competing on gigantic multi billion pipeline contracts to bring natural gas from Alaskas North Slope and Canadas Mackenzie delta to the US consumer. Costs could be as high as $20bn and could incidentally boost UK oil and gas services company Huntings Gibson Energy subsidiary if, as expected, they win one of the pipeline supply contracts. Gibson Energy could also benefit from the huge amounts of Mackenzie Delta gas to be shipped south. Thermal production of Canadas oil sands requires natural gas as a fuel and as green field developments get off the ground, Gibson will be ready and waiting to move oil from the new projects.
In terms of tankers, there is one small company recently floated on AIM, which could be a major beneficiary of gas globalisation and this is Hamworthy (High Risk).
Capitalised at 48m, Hamworthy has three main businesses, Gas Systems (44% of sales), Pump Systems (40% of sales) and Waste Water Management, (16% of sales).

PRODUCTS
The Gas System business has three main products. The first is the design and build of reliquefaction units for tankers transporting liquefied natural gas, (LNG) and liquefied petroleum gas (LPG). LPG is typically transported at minus 60 Celsius and heat gain from the atmosphere causes boil offof the gas. Hamworthys products reliquify this gas and return it to the cargo. This process is essential to the safety of the tanker. LNG is transported at minus 160 Celsius and similarly heat gain from the atmosphere causes boil off. This process is not critical to tanker safety and therefore the practise has been to use the resulting product to produce steam power. As a result, rather curiously LNG carriers are the last steam powered ships in service. Hamworthy has developed a system that circumvents steam power and enables tankers to be driven by diesel powered units, which typically saves ship owners more than $5m a year. Hamworthy is the only company in the world to have proven this technology and Exxon Mobil and Conoco Philips are actively considering placing the first orders for diesel powered tankers.
Crude oil also tends to evaporate during transportation particularly at the transport stage and Hamworthy has developed a system for controlling crude (VOC) evaporation, using its core skills in liquifaction technology.
Hamworthy is a global leader in gas systems. It is estimated that it ranks number one in gas reliquifaction with 53% of the global market and number one in crude oil evaporation control systems with 47% of the market. These market positions are very significant due to the conservative nature of the marine industry. Customers require extensive reference lists and years of successful operation before ordering and in particular before ordering new products. As market leader, Hamworthy is offering new products which if they gain acceptance from clients such as Exxon Mobil and Conoco will considerably strengthen the Groups dominance of the market, particularly in view of the cost savings offered.
To get an idea of these markets, a typical LPG order would be between 2m to 5m, a typical LNG order would be 5m to 10m and a typical VOC order would be 4m to 8m.
The LPG and LNG tanker build is rising sharply. Gross deliveries this year will be around 33, in 2005 it will be 45 and in 2006 it will be 59. Because of the long lead time in the tanker ordering process, these are relatively reliable figures.
Hamworthy also ranks as between 1 and 3 in the global supply of deep well gas pumps, deep well product/ chemical pumps and pump room and engine room pumps. Hamworthy has recently expanded its presence in the deep well product/chemical pump market as a result of the application of a new technology driven by a pump with an oil lubricated shaft and a sophisticated sealing system which has a number of advantages over its competitors, including lower cost installation, quieter running and a reduced risk of polluting the cargo due to an advanced sealing system. These products are targeted at the larger tanker market of in excess of 50,000 deadweight tonnes and at the fast growing floating production vessel market. The Group has recently received major orders for this product worth 7m initially and because of the conservative nature of the industry in relation to new product acceptance, more business is likely to follow. Pump system orders typically range between 130,000 and 1.5m and there is a good ongoing replacement and maintenance business providing recurring revenue.
In terms of its Waste Water Management business, Hamworthy is ranked no 1 in the world for advanced water treatment and no 1 in the world for conventional water treatments. Wastewater systems handle sewage treatment on board large vessels which include cruise liners. Increasingly tight environmental legislation means that wastewater systems are becoming more sophisticated in terms of aerobic treatment technology and membrane filtration in order that discharges are legal and Hamworthy is the market leader in this development. The Wastewater business has an order profile ranging from 4000 up to 2m for membrane filtration.

ORDER BOOKS
The Groups order book amounted to 98m at May 2004, representing over twice the existing market capitalization and is growing rapidly. In terms of UK engineering companies, it is difficult to find comparable companies who have such lead positions in expanding markets, led by the demand for both oil and gas transportation.

GLOBAL COST COMPETITIVENESS
As a global business the Group has assembly, distribution and design operations near its major tanker clients. For example, it assembles and tests and designs systems in Norway and the UK where for historic tax reasons tanker owners congregate. The manufacturing process increasingly is undertaken from the Groups plants in
Suzhou, China and from Singapore. For example the assembly of flue gas plant and most inert gas plant has recently been transferred to the China facility from Norway and Singapore is developing fabrication and machine shops, taking advantage of low cost labour imported from outside Singapore.
Traditionally the Japanese shipbuilding industry has always purchased locally manufactured auxiliary equipment. The shift in ship production away from Japan and towards China and South Korea has therefore been very helpful to Hamworthy because these markets are much more open with weaker competitors. For example Hamworthy has an 80% market share of the marine sewage treatment business in China and for LPG systems Hamworthy is the exclusive supplier to Daewoo, one of the three large shipyards in Korea.

PROFIT ESTIMATES, CASH GENERATION AND DEBT
Historically free cash generation has been strong and the management expect ongoing cash flow to improve, with margins rising as a result of fewer subcontracted sales, lower prototype spend as a result of new product development completions, and a higher margin contribution from the pumps and wastewater businesses. The prospect of a build up in new high margin gas systems orders, each of which could be worth over 6m in sales should also boost margins.
Proforma profits are estimated to rise from 5.5m in 2004/5, to 6.9m in 2005/6 and at least 8.7m the following year. The comparative figures for free cash generation are 5.2m, 8.0m, and 8.6m. At the end of this year the Groups debt is estimated at 2.3m. Cash generation should result in net cash of 3.8m in 2005/6 and 9.8m the following year.

VALUATION
The nearest comparisons to this Group are Sondex, trading on a current year multiple of 14 and Weir Group which typically trades on multiples of 12 plus. We would argue that Hamworthys prospects are brighter than both these companies in view of the strong order book and the global positioning. Fully taxed earnings of 13p this year and 16.5 p for the 2005/6 end March, suggests a current year PE of 9.9x and a prospective PE of 7.8x. There is a prospective yield in excess of 4%. If trading on a similar PER to Sondex the shares would be valued at in excess of 180p. We would argue that a premium to Sondex is justifiable, in particular because of the potential ramp up to sales as a result of the new product pipeline now gaining client acceptance in what is in any event one of the fastest growing markets in the world.

Excelent piece that Jason, well done for getting it.

cheers GF.

An extremely readable article,goes a long way to justify my modest share holding.
Thank`s for flagging this one Jason.
Cheers.

Good to have you on board porky, hope we all make a nice profit from this one.

Be lucky, Jason.

Superb brokers note Jason.

cheers GF.

It all sounds very positive in the brokers note, looking for a steady flow of buys todays and another move up in the price if we are lucky.

Thanks for the brokers note Jason. I wish I was in a position to buy more.

Its due a price rise Jasonlets face it we havent had one for two days LOL.

cheers GF.

Frampton, been looking at a few of my poorer performing investments this morning and considering dumping them and buying some more HMY but I may stick with my current holding for now. Decisions, decisions!

gf, due a bit of a rise soon but I think it may be Tuesday or Wednesday before we see anything now. It's odd to believe, but a few more days at these prices will actually strengthen our position.

Jason - I also have the same problem - do I dump stocks going nowhere to buy more HMY? No doubt I'd choose the wrong ones and they'd suddenly rise after I'd sold out!

Frampton, I think we have all been there before, one of the joys of investing I guess!

Best to keep a balanced portfolio guys. I know its tempting to get rid of some that are dormant, but remember they can just spring into life when you least expect it.

cheers Gf.

Should be just about time for a rise for this one on tuesday.

cheers GF.

GF, good advice on the portfolio, decided against pulling some of the other investments but always good to re-assess the shares being held. Hope we do get a rise today.