Porvair's Niche Products Drive Steady Growth

T: +44 (0) 1872 262622
F: +44 (0) 1872 265326 Access more free research at

E: mail@galvan.co.uk www.galvan.co.uk
W: www.galvan.co.uk
S P E C I A L R E P O R T
Porvair Plc (PRV) Andrew Gibson, Head of Research
“This small company has it all – great products, great

customers, great cash flow.”
Porvair is an industrial filters group. Making need quality accreditation and as they are
filters may not sound very exciting but most largely developed through research, many
industrial processes rely heavily on them are protected by patents.
because they protect costly machinery and
The core business is the microfiltration
prevent pollution and waste.
division, which is driven by sales to the
Porvair may be a low profile company, but it aviation industry. This division delivers
has some high profile customers including good cash generation and is a solid
Boeing, Rio Tinto, Alcoa, Ford, Honeywell, performer, having managed to produce a
Conoco Phillips, John Deere and Severn slight increase in profits even during the
Trent. This diverse list of customer’s recession.
illustrates just how many different industries
Its other large division - metals filtration is
use Porvair’s filters.
more sensitive to economic conditions. It
The company employs around 500 people got battered by the recession. Both the
at plants in the US, UK and Germany with aluminium and auto industry hit the skids in
around half of its sales in the US. 2009. New orders dried up as Porvair’s
customers used up their existing stock.
Porvair’s business strategy is highly Porvair was forced to cut the metals
attractive. filtration workforce by 40%. The division
swung from a £1 million profit in 2008 to
Demand for its products is often driven by over a £1 million loss in 2009, though it has
regulation (controlling emission levels) and now returned to profit again.
90% of sales come from consumables, so
We believe the recession demonstrated
customers keep coming back for more. The
Po r va i r ’s q u a l i t y. F i r s t l y, t h e c o r e
specialist nature of the products also means
microfiltration division was very resilient.
there are high barriers to entry – products
Secondly, management did a good job
Galvan Research and Trading, CMA House, Newham Road, Truro, Cornwall, TR1 2SU
Risk Warning Notice: Galvan Research And Trading Ltd is authorised and regulated by the Financial Services
Authority (FSA). Whilst every attempt is made to ensure the accuracy of the information provided, no
responsibility can be accepted for any inaccuracy. The information provided cannot be relied upon as
constituting a recommendation, nor construed as any offer to sell, or any solicitation of any offer to buy
investments. No liability is accepted for any loss whether direct or indirect, incidental or consequential, arising
out of any of the information being untrue and / or inaccurate, except to the extent caused by the wilful default Winner: Best Equity Derivatives
or gross negligence of Galvan Research And Trading, its employees, or which arises under the Financial Services Advisor, Best CFD Advisor
And Markets Act 2000.
T: +44 (0) 1872 262622
W: www.galvan.co.uk
Porvair Plc (PRV)

stemming the losses in the metals filtration of the tunnel”. This could make a big
division by cutting costs swiftly. Finally, the difference to Porvair’s bottom line as R&D
company remained profitable overall and costs have been a significant drag on
was able to maintain its dividend. earnings over the last 5 years.
After a rough 2009, 2010 was a much Earnings peaked in the year to 2008 at 7p a
better year for Porvair. Revenue and profit share. Since then the company has made
have bounced back strongly and the benefit an acquisition and introduced new products,
of cost cutting is kicking in. Strong cash adding to its earnings potential. The
flow has been used to reduce borrowing to balance sheet could support further bolt-on
comfortable levels. acquisitions and the clean energy products
add plenty of potential upside. For these
Recent news flow has been encouraging. reasons, we see earnings accelerating over
the coming years.
The company has announced some good
Overall, Porvair looks a company with a
contract wins and is boosting its production
bright future. Being a leader in a niche
capacity at one of its US manufacturing
market is often a winning strategy. Its
plants. We see this positive momentum
broad mix of customers and products
continuing in 2011.
lowers its risk profile and despite being a
Porvair also has something else that could small company - it also enjoys good pricing
be about to pay off. The company has a power.
promising portfolio of “clean energy”
The CEO of Porvair, Ben Stocks, sums things
projects in development in areas such as
up best “price isn’t the main issue for our
clean coal and fuel cell technology. After
clients, but performance certainly is. And
years of heavy spending, Porvair is now
what’s more, our filters are consumable and
moving from the development phase to
replaced every one to five years, which
early commercialisation. Porvair believes
equates to good earnings visibility and a
they are beginning to see “light at the end
nice steady business.” Well said.
T: +44 (0) 1872 262622
W: www.galvan.co.uk
Fiberweb Plc (FWEB)

“The shares trade at 40% below their net asset value. No wonder
the Director’s have been snapping up the shares.”
Fiberweb is a world leader in specialist Bear in mind, the industrial side of the
fabrics. They make non-woven fabrics for all business is sensitive to the economic cycle.
kinds of things. The largest part of the So Fiberweb has achieved its margin
business is hygiene products – a polite term improvement in weak underlying markets.
for nappies, tampons and incontinence
The joint venture with Fitesa of Brazil has
pads. They also have a wide range of
been a real success. It is enjoying strong
industrial products for builders, graphic
trading and profits. Strategically it has given
artists, landscape gardeners and car makers
Fiberweb a platform to expand in Latin
- to name just a few.
America, a key growth market.
Fiberweb was spun off from BBA Group in
Following on from this success, Fiberweb is
late 2006. Since going it alone, the
now seeking to do a similar deal in China.
company has been through a long and
I n S e p t e m b e r l a s t y e a r, F i b e r w e b
painful restructuring process. Things
announced it had completed a successful
weren’t helped by the recession as all parts
feasibility study with Chisso Corporation of
of its business suffered. Consumers cut
Japan to set up a joint venture in China.
back on spending, builders cut back on
The companies believe Asia is another
construction and carmakers cut their
market with loads of potential.
production.
But these days Fiberweb looks in decent After four years of restructuring efforts, the
shape. All the restructuring has made market has been slow to catch on to the
Fiberweb simpler, more focused and more turnaround at Fiberweb.
efficient. The hard work is now paying off.
The company has delivered 6 consecutive The company is now making a habit of
half-year’s of operating profit and margin exceeding market expectations. In fact,
growth. Fiberweb has now surprised to the upside
T: +44 (0) 1872 262622
W: www.galvan.co.uk
Fiberweb Plc (FWEB)

four times in a row: December 2009, March to spend £22 million of that on plant and
2010, August 2010 and October 2010. equipment, but have pointed out that this
Investors are finally starting to take notice. level of capex is not expected going
forward.
Despite the shares having a strong run in
the second half of 2010, we feel there is still 3. B o r ro w i n g s a re w e l l w i t h i n b a n k
plenty to attract buyers. The shares trade covenants. Interest was covered over 6
on a modest earnings multiple of around 8 times by profits, well above the 4.5 times
times and offer around a 5% dividend yield. covenant.
What’s more the company is trading at
around 40% below its net asset value of There’s another important reason why
£174.5 million. Fiberweb has caught our attention: director
buying. When “insiders” start snapping up
Why such a large discount?
shares, it pays to take note.
Firstly, the restructuring process saw a lot of
asset write-downs, so the market has Chief executive Daniel Dayan and finance
become wary of the company’s stated asset director Daniel Abrams already have sizable
values. But management seem confident stakes in the company, which is a good
that the write-downs have come to an end. sign. Rather than cash in on recent success,
Secondly, there are some concerns over these guys have been adding to their
Fiberweb's £142 million of debt. We are not stakes. In September last year the duo
alarmed by the debt levels for 3 reasons: picked up another 129,000 and 96,000
shares respectively.
1. Management are fully aware that debt
needs to be reduced and have set a It’s been a long time coming, but Fiberweb
medium term target to bring it down to finally looks to have turned the corner. Sure,
around two times annual cash profits. the debt still needs to come down but if this
is executed as planned, we believe the
2. The company is highly cash generative. shares will gravitate quickly towards net
First half cash profits came in at £26 asset value. In short, the shares still offer
million. Management did however choose plenty of potential upside.
T: +44 (0) 1872 262622
W: www.galvan.co.uk
Lamprell Plc (LAM)

“Having doubled its order book last year, profits look set to
boom”
Lamprell is a FTSE 250 oil services group. While the Middle East remains Lamprell’s
The company was founded in 1974 and biggest market, the company has won
floated on AIM in 2006. Due to rapid plenty of work around the world. In fact,
growth, the shares joined the FTSE 250 in only 25% of Lamprell’s jackup rigs are
2008. located in the Middle East.
Its core business is refurbishing and

In the UK and Europe, Lamprell is a leader
building offshore oil rigs in the Gulf region,
in wind farms.
in particular “jackup rigs” and “liftboats”. A
jackup rig is a floating barge with long legs
The company has already built 32 wind
that stand on the sea floor. A liftboat is a
farms, with 22 under construction and
self-propelled, self-elevating vessel with a
another 25 in planning stage. Renewable
relatively large open deck. They are often energy is a growth area as energy security
described as the “trucks” of the offshore
and the environment have become serious
fleet, used to carry any kind of equipment.
issues.
Lamprell operates from 3 primary facilities
While Lamprell has been busy rebuilding its
in the Middle East. Given the size of oil rigs,
order book, the shares took a knock in
land and quay space are key factors in November last year as management warned
being able to perform refurbishment work.
that 2010 profits would be at the lower end
As customers want minimum downtime,
of expectations. This caused a drop in the
having facilities nearby is very important.
share price, but in our view this was a
These barriers to entry have allowed
short-sighted reaction by the market.
Lamprell to gain 90% of the jackup rig
market in the Middle East. Why?
T: +44 (0) 1872 262622
W: www.galvan.co.uk
Lamprell Plc (LAM)

Because we see profits picking up in 2011 What’s more the oil price has bounced back
for 3 reasons: over the last couple of years. When the oil
price is strong, drilling and construction
1. Some of the orders won during the
activity increase sharply – which gives the
recession were at thin profit margins.
oil services sector a boost.
This work is largely done now. The new
contracts coming on stream should be a The fundamentals for Lamprell look sound.
lot more profitable. The balance sheet has no long-term debt.
The company has a strong reputation in its
2. The timing of contracts worked against
industry with a roster of long standing blue-
Lamprell last year. A lot of the profits
chip clients.
come through in the latter stages on
contracts, which should kick in this year. If you’re looking for a quality company with
good near-term prospects but available at a
3. Lamprell’s mix of work is improving. As
decent price, then Lamprell fits the bill.
the oil price rises, Lamprell’s customers
have more money to spend. This creates
a shift from refurbishing oil rigs to
building new ones. And Lamprell makes
more money from building new ones.
We believe the market has yet to fully

appreciate the progress made by Lamprell
in recent times.
Lamprell has a brimming order book, having

doubled its value in a little over a year. It is
also in the running for an estimated $3.1bn
in upcoming projects.
T: +44 (0) 1872 262622
W: www.galvan.co.uk
Interserve Plc (IRV)

“This seriously cheap company offers great growth prospects
and a mouth watering dividend”
Interserve is an infrastructure and facilities We don’t think so. Our view is that the
management group. A what? They basically market has overplayed the public spending
play a support role through the life-cycle of cuts. There’s no hiding from the fact that
infrastructure such as hospitals, schools, the UK government is Interserve’s biggest
factories, offices, bridges and roads. customer. It’s also true that the government
has cancelled £600 million of orders with
Interserve can do it all. They can help
Interserve.
customers with construction, equipment
hire and then the facilities management. This still leaves Interserve with a total order
Facilities management is more than just book of £4.5 billion, plus it also has an
changing light bulbs, it involves things like additional £1.2 billion of work in the
security, catering, and cleaning as well as pipeline. What’s more, most of the cancelled
overall maintenance. orders don’t kick in until 2013. This leaves
Interserve plenty of time to find alternative
The shares have had a torrid time over the
work.
last couple of years. Profit margins have
been squeezed to very low levels in facilities Any further government cuts are likely to be
management and the outlook has been contained as education and health are
blighted by fears of public-sector spending Interserve’s largest areas of exposure, and
cuts. While most shares spent 2009 and to coin a cliché, these "frontline" services
2010 in recovery mode, Interserve’s share will be largely protected. Bear in mind,
price has made little progress. building maintenance is hardly discretionary
spending.
Is this justified?
T: +44 (0) 1872 262622
W: www.galvan.co.uk
Interserve Plc (IRV)
The company offers a yield over 8%!

Something we believe is being overlooked is
Normally if a stock’s yield is that high it’s
Interserve’s growth potential overseas,
because the market doesn’t believe it can
particularly in the Middle East. The region
be sustained. Yet Interserve has a solid
has favourable economics: high population
balance sheet and its dividend is twice
growth, a need for better infrastructure and
covered by its profits. As if to reinforce the
of course lots of oil money to spend.
point, management even decided to
increase it by 3% last year.
Around a third of Interserve’s profits now
come from the Middle East. Qatar is Recent trading is showing some signs of
Interserve's largest market in the Middle life. Revenue is beginning to perk up and
East. It may be a small country, but it has the management team are confident they
big ambitions. Qatar’s successful bid for the can make margin improvements this year in
2022 Football World Cup demonstrates the the core Support Services division. We don’t
point. see this as a stretch. With margins running
at barely 2%, small improvements can bring
Interserve also operating in Oman, Saudi
big results.
Arabia and the United Arab Emirates. These
countries are growing fast and the rising oil Overall, the fears over public sector cuts
price bodes well for increased orders. look way overdone to us. Interserve’s order
book is still looking healthy. The companies
There’s one other thing that is especially valuation is hard to ignore – an 8%
attractive about Interserve – its mouth dividend yield and an earnings multiple of
watering dividend. just over 5. That’s seriously cheap.
T: +44 (0) 1872 262622
W: www.galvan.co.uk
Enquest Plc (ENQ)

“This company has found a gap in the market and is wasting no
time in filling it.”
Enquest was formed last April through a Enquest also ended the year in a very
combination of the North Sea assets of two strong financial position. The company is
companies - Petrofac of the UK and Lundin not only debt-free, it also has a substantial
Petroleum of Sweden. The shares are cash pile and a $200 million bank facility
included in the FTSE 250 on the London that is currently sitting unused. The
Stock Exchange and hold a secondary listing management team wants to use this
on the OMX in Stockholm. financial firepower to acquire surrounding
North Sea assets.
Enquest has interests in 6 North Sea oil
fields – 2 coming from Petrofac and the
Enquest believes it has found a gap in the
other 4 from Lundin. The fields are a
market.
mixture of the new and the old. While
“West Don” only began production last year,
The oil majors have the skills to develop
“Thistle” and “Deveron” have been around
North Sea assets, but don’t have the
since the 1970s.
appetite. The fields are just not big enough
Enquest looks in great shape. Having to make it worth their while. At the other
increased full year production to 20,000 end of the spectrum, there are many
barrels a day, the company is on track to smaller oil companies that are asset-rich but
deliver a whopping 47% growth rate in cash-flow poor. Enquest is nicely positioned
production for last year. The momentum is in the middle.
expected to carry over to this year, with
The company is actively looking around for
production forecast to grow by another
attractive assets and expects to do deals in
30%. To put that into context, BP and Shell
the next 12 to 18 months. The CEO is in a
typically produce 0-6% production growth.
confident mood "there’s quite a few things
T: +44 (0) 1872 262622
W: www.galvan.co.uk
Enquest Plc (ENQ)

for sale, both packages from the majors … exploration remains unpredictable. But its
as well as some independents are trying to potential provides a wild card for investors.
sell assets, so there’s probably between half
While there are scores of small cap oil
a dozen to 10 things on the market as we
explorers to choose from, there aren’t many
speak".
mid-tier oil companies such as Enquest. The
But Enquest isn’t relying on just deal mid-tier offers investors a nice mix of
making to drive growth. The company can exploration upside, racy production growth
add plenty of value to its existing portfolio. and cash generation.
In fact, $1 billion has been earmarked for
Mid-tier oil producers are scarce for a
the development of its core assets in the
reason. For a start, many of the tiddlers
northern North Sea over the next 5 years.
don’t make it to the next stage. The ones
that do survive and go on to become
The resurgence of the North Sea oil industry
producers, find themselves as takeover
has confounded the experts. Many thought
targets. This can be very good for investors.
its days were numbered. There’s still life in
Dana Petroleum and Venture Production are
the old dog yet.
two recent examples of this.
The discovery of the Catcher field in June Enquest’s shares may not look cheap based
last year caught many by surprise. It could on historical results, but the company is in a
be the biggest North Sea find for a decade. high-growth phase - both in terms of
While Enquest has no stake in Catcher, it production and reserves. Its strong financial
has given the region a new lease of life. position only adds to its growth potential.
Having already built a reputation of
Enquest has its own exploration programme
surprising to the upside, we expect the
on the go. It is currently in the process of
good news to keep coming in 2011.
drilling six new wells. Despite all the fancy
seismic technology available today, oil

Porvair's Niche Products Drive Steady Growth

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Porvair's Niche Products Drive Steady Growth

Uploaded by

Copyright:

Available Formats

T: +44 (0) 1872 262622

F: +44 (0) 1872 265326 Access more free research at

Porvair Plc (PRV) Andrew Gibson, Head of Research

“This small company has it all – great products, great

Porvair Plc (PRV)

Fiberweb Plc (FWEB)

Fiberweb Plc (FWEB)

Lamprell Plc (LAM)

Its core business is refurbishing and

Lamprell Plc (LAM)

We believe the market has yet to fully

Lamprell has a brimming order book, having

Interserve Plc (IRV)

Interserve Plc (IRV)

The company offers a yield over 8%!

Enquest Plc (ENQ)

Enquest Plc (ENQ)

You might also like