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  • Writer's pictureMark Watson-Mitchell

Harland & Wolff – really starting to hum and giving increasing confidence

The news machine at Harland & Wolff (LON:HARL) is certainly getting into gear.

Just a month ago the maritime and offshore industry fabrication group announced a significant win with the Fleet Solid Support Programme Subcontract with Navantia UK, to cover delivering works to that company worth between £700m to £800m to H&W over a seven-year period.

This contract could prove to be a ‘game changer’ as it progresses.

In the middle of last month, it reported that it had completed the first hull for the Cory Barges fabrication contract.

The next day the group updated investors that it was switching its four barges contract work from its Belfast facility over to its recently acquired Methil site in Scotland.

On 20th February it announced that the group had secured six new smaller contracts within the defence, cruise and ferry and commercial fabrication markets, worth over £10m and taking 18 months to complete.

At that time Group CEO John Wood stated that:

"Since the commencement of 2023, we are seeing an uptick in the level of enquiries flowing through all the yards for multiple projects.

Whilst securing the longer-term FSS Programme as part of team Resolute was a major milestone for the Company, the Company must continue to rely on securing and executing smaller projects across its yards, adding to the experience and skills of the workforce.

I am delighted that we have significant traction across all our markets and are moving forward to consolidate our position as a partner of choice in each market."

The next day the group reported that it had submitted plans to extend its fabrication halls at its Belfast facility, as part of its £77m Recapitalisation Plan for the FSS Programme, which will involve upgrades on its automated and robotic machinery.

The extension to the halls is expected to give substantially improved production flow, enabling the group to be more efficient and cost-effective.

Business Update and Outlook statement

The group has now produced a Business Update and Management Outlook report for 2023 and 2024.

It has a backlog of confirmed contract revenue of some £900m, extending over the next seven years.

It also has a weighted pipeline of new business reckoned to be in excess of £3.6bn in revenues over the next five years.

The company has reported a contract win ratio of 34%, suggesting that it would have a Backlog figure of some £1.24bn.

That would take the Backlog up to around £2.14bn, helping to deliver the group’s medium-term targets.

Accordingly, the company has upped its guidance levels expecting its target revenues to be between £100m to £115m this year and then £200m to £230m next year.

Importantly it expects its cashflow to be breakeven in 2024.

The group’s Management considers there to be a continuing improvement in market conditions across the five markets in which the company is engaged.

Higher charge-out rates are working their way through the contracts (new and existing) to reflect the inflationary environment and preserve a blended gross margins target range of between 24% and 27% in the medium term.

CEO John Wood commented that:

"It is gratifying to see the levels of activity that are already present in all of our yards, with the knowledge that this is only going to increase steadily - and materially - from this point.

The Harland and Wolff machine is really starting to hum and our ability to operate flexibly across multiple facilities will become increasingly important as an industry differentiator as our workload expands.

We look forward to the future with increasing confidence."

The Business

The group operates through five markets: commercial, cruise and ferry, defence, energy and renewables and six services: technical services, fabrication and construction, decommissioning, repair and maintenance, in-service support and conversion.

Its Belfast yard is one of Europe's largest heavy engineering facilities, with deep water access, two of Europe's largest drydocks, ample quayside and vast fabrication halls.

The group also has two Scottish-based yards, focused upon work for the renewables, energy and defence sectors.

In addition, it also has a sizeable undercover drydock at Appledore.

The group also owns the Islandmagee gas storage project which is expected to provide 25% of the UK’s natural gas storage capacity.

Analyst Opinion – reiterating the Buy recommendation

Analyst Peter Renton at the group’s NOMAD and Joint Broker Cenkos Securities has a Buy recommendation out on the company’s shares.

His estimates for the current year to end December look for a 350% rise in group revenues to £100m and then for 2024 a doubling of that figure to £200m.

On the basis of those figures, he looks for a pre-tax loss this year of £34.1m falling to £20.0m next year.

Conclusion – shares could easily double

If all this was not good enough to excite investor interest, it is well worth noting that the group’s management estimates that the sale of 100% of the Islandmagee gas storage development project could generate between £35m to £50m – that is more than the group’s current market capitalisation of £30m, with its shares at 17.15p.

They have trebled in price since last November and have peaked at 29p within the last year.

At the current price medium-term investors could easily see the shares double.


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