Companies: HMY   

Hamworthy’s recent trading update revealed that the engineering group’s results for the year to 31 March would be modestly ahead of expectations. Analysts who follow Hamworthy responded by increasing their forecasts marginally, with house broker Collins Stewart upping its earnings per share (EPS) estimate for the last financial year to 27.4p (it had previously estimated 26.5p).

The group also announced that its order book had again grown compared to the previous year. At the end of February the book stood at £285 million, up from £254 million a year earlier.

The order book is actually down on September, when it stood at £304 million, but it is not unusual for Hamworthy’s book to decline between September and February. Over the medium to long term, demand for the fluid-handling systems that the group makes for the cruise ship industry and for the shipping of natural gas is increasing. As Hamworthy chief executive Joe Oatley says, both of these markets ‘are driven by the increased focus on environmental concerns’.

With adjusted EPS set to come in this year and next at 30.3p and 34.3p, Hamworthy is growing its earnings at double-digit rates. So, at their current price of 461.5p the shares are rated at around 15 times and 13.5 times earnings – which would make them slightly overvalued, were it not for the group’s net cash holding of £44.4 million (equivalent to 97.4p per share) at the end of September last year.

In any case, with the high oil price driving up demand for liquefied natural gas (a market that Hamworthy is exposed to thanks to the re-liquefaction plants that it makes) we think the estimates for 2009 and 2010 are likely to prove conservative. Buy.

Hamworthy	AIM	£74.59m	164.25p	-8.75p
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