Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
London South East prides itself on its community spirit, and in order to keep the chat section problem free, we ask all members to follow these simple rules. In these rules, we refer to ourselves as "we", "us", "our". The user of the website is referred to as "you" and "your".
By posting on our share chat boards you are agreeing to the following:
The IP address of all posts is recorded to aid in enforcing these conditions. As a user you agree to any information you have entered being stored in a database. You agree that we have the right to remove, edit, move or close any topic or board at any time should we see fit. You agree that we have the right to remove any post without notice. You agree that we have the right to suspend your account without notice.
Please note some users may not behave properly and may post content that is misleading, untrue or offensive.
It is not possible for us to fully monitor all content all of the time but where we have actually received notice of any content that is potentially misleading, untrue, offensive, unlawful, infringes third party rights or is potentially in breach of these terms and conditions, then we will review such content, decide whether to remove it from this website and act accordingly.
Premium Members are members that have a premium subscription with London South East. You can subscribe here.
London South East does not endorse such members, and posts should not be construed as advice and represent the opinions of the authors, not those of London South East Ltd, or its affiliates.
https://www.letsrecycle.com/news/latest-news/slicker-recycling-expansion-avos/
The CEO, Mr Verfürth commented: “This deal is consistent with our vertical integration strategy, while partnering with Slicker Recycling who are well placed to ensure the continued success of the AVISTA OIL business. We look forward to exploring further opportunities with Slicker to expand our respective market leading positions.”
https://www.avista-oil.de/en/
Across Europe and 12 states of the southeastern US, our collections logistics professionals collect used oil directly on site from consumers, then bring it to an AVISTA OIL refinery for upcycling.
Slickers bought Avista uk last year. A Black is still a big shareholder in HYR and is the owner of Slickers.
Now this is interesting, pay attention to the wording in particular.
“Hydrodec has historically had operations outside of the USA including in the UK and Australia, identifying the market opportunity that exists globally for clean transformer oil. However, a recent business strategy update highlighted the company’s intention to focus on the US market, where it runs six “processing trains” with a nameplate capacity of 45 million litres of SUPERFINETM. As a result, Hydrodec announced the planned disposal of its Australian business in Bomen, New South Wales, which is a smaller operation (one processing train with a nameplate capacity of 6.5 million litres of SUPERFINETM). The disposal is due to complete in the coming months with proceeds to be reinvested in the US business, with a view to maximise shareholder returns.”
HYR is looking undervalued now.
Stockopedia has a NAV price per share of $1.04 which equates to 79p.
With the recent equity raise HYR has reduced debt and should have the funds to increase production which will in turn improve the profit margins considerably.
Disposal of the smaller loss making Australian facility is in process and looking at the next few months.
From my experience, after a capital raise and/or a consolidation a 20% drop often occurs over time. This would be 60p from the 75p consolidation price. Getting close to that now.
This is starting to look very attractive in value.
Obvious risks of continual feedstock issues which are hopefully overcome by the supply from G&S and I think they have sorted the feedstock issue as they would not be talking of raising the price if they could not supply on demand.
Other issue would be failing to dispose of Australia plant. If sold though, funds will likely be spent on updating Canton.
Finally, the stock is quite iliquid atm. Easy to buy, but can only sell small amounts. I think though, this will change as investors start to see the value here. I personally think around 60p will be the bottom. There is major support at 57p but I'm not sure how much that counts for after consolidation makes charting hard to do.
A valuation currently of £1 has been given and £2.50 target over next 3 years.
The valuation price is based mostly on two things.
1. Price increase of oil from $2.30 to $3.50 per litre.
2. Increase in sales of transformer oil due to increased demand.
The demand in the US for transformer oil is high and is going to continue to be high because of the ageing substations which are in a process of being replaced/upgraded/serviced. The average age of these substations is approx 40 years old with 75% of them being 25+ years old.
Canton in Ohio is in a prime location with regards to the amount of substations in the US.
Add to this that GDP is set to grow at a rate of 2.1% until 2040 in the states, there will be a growing demand for electricity and therefore transformer oil to service the substations.
There is a possibility that spare cash may well be spent on improving capacity to 100%. Currently it stands at a maximum of 90% and 12m gallons.
Regarding talk of collaboration with Slickers, that is all very quiet at the moment which makes me wonder is the logistic costs are too high presently. Maybe something for the future.
What I am looking forward to hearing about is the disposal of the Australian facility. It was moved to discontinued operations half way through 2018 which will reduce losses but until sold off, there will still be costs. They are hoping to dispose of it this year.
Re the transport. Yes that was always a significant drag on market penetration & margin. Presumably a big reason to locate a second plant. Now with the G&S tie-up, they had more reason to locate near their partner’s supply chain.
If the US doesn’t fall into recession post 2021 (as some predict), I can see the market sustaining a second plant. Once the business model has proven it’s profitability, those new reactor designs could become a rather (nicely) expensive IP.
Excellent read, thanks legobrickgirl.
This doesn’t include any potential added value from collaboration with Slickers. I’m discounting the prospect but it’ll be a nice bonus if anything concrete does happen.
I do not think we will hear details so much about feedstock. Most of it will come from G&S which is a win win situation for G&S due to their 15% stake in hyr.
The supply and demand is set to increase quite considerable in the next few years but the cost of the feedstock is also to rise. This is likely to be offset by hyr intending to increase their price per litre from approx $2.3 to $3.5.
The canton plant is well situated in the US as there is a concentration of substations in that area which helps a lot due to her having to cover the costs of transport which is expensive due to lack of hgv drivers in the states.
Canton over the last year has been running at just 50 to 55% capacity due to lack of feedstock. With improved supply though, capacity can be raised which greatly increases the margin of profit. At 70% capacity there is a 35% return on capital where at 90% capacity it is a 90% return.
Forecasts of revenues and profits are predicted to rise making hyr profitable in 2019. By 2021 forecasts for revenues is 29.3m and group EBITDA of 10.7m with an EPS of 23.8.
I guessed there would be 3m left over from last years financing which I thought would be used to pay of A Black. Instead I think it is going to be used to buy more feedstock so they can store it for quieter times of the year when feedstock is low. This will help then to supply transformer oil on demand enabling them to charge the higher price.
Debt is forecast to be paid of by 2021 with 6m cash holding.
I also want them to flesh out the proposed projects in the pipeline, especially around the potential collaboration. Long term projects obviously eat into capital, so some numbers identifying the possible revenue streams, would be nice.
I’m back
Thanks legobrickgirl, interesting read. It reiterates the feeling that the return promised for so long, may actually appear. Obviously those in long ago, not so much.
I’m waiting to hear how they’ve got on with the feedstocks issues. I think the pressures caused from the Mexican trade in oils, are less so, and with greater capital they can compete for the larger feedstock bids, rather than smaller expensive spot pricing (I’m assuming). If there were going to be any, the new marine regulations will already be having an effect, so the next update should be interesting.
During the slower period the paraffinic market had a less stable time than naphthenic but generally, the market is doing well. Carbon pricing is edging up, and on some platforms, the price floor is shifted up over time. Not sure where & at what price, HYR achieve on their credits but it is another longer term resource to tap.
Financial Forecasts
Our forecasts represent 30% revenue CAGR and 92% EBITDA CAGR (pre-central costs),
driven by improving capacity utilisation and pricing uplift from utility customers over the
next 3 years.
In our model, this is largely driven by increased capacity utilisation from improved
feedstock levels, although there are some pricing and cost assumptions which reflect
Hydrodec’s access to the utility market.
Valuation
Hydrodec trades on 4.6x EV/EBITDA, 9.4x P/E, 5.6% dividend yield and a 15% FCF yield
(all 2020E). Although we acknowledge execution is required through 2019, we believe
the existing assets and potential for high cash returns are extremely attractive to equity
investors at current levels.
We base our target price on forward peer multiples, sense checked with a DCF
methodology. The US refining sector broadly trades on a 5-7x EV/EBITDA and 9-11x P/E
(eg. Valero, Phillips, Marathon) but we believe Hydrodec can trade at the top end or
above this range given the transformative growth on offer and would see this as
conservative.
We set our target price at 100p which equates to 6.8x EV/EBITDA 2020E (ie. Top of the
range) and 14x 2020E P/E. On our forecasts, 2020E represents a strong operational year
but with significant earnings upside in to 2021 as further pricing and operating leverage
comes through. As such, on 2021E multiples, the stock only trades on 1.8x EV/EBITDA
and 3.7x P/E with a 30% FCF yield.
We model a DCF valuation to sense check the numbers. Inevitably, given the large
weighting of cash flow in the later forecast years and the terminal value, the DCF
provides a valuation of c. 250p a share although we recognise the execution required
over the coming years to crystallise this value. That said, our view of Hydrodec’s assets and strategy leads us to believe there is material upside for investors in this stock and
initiate with a buy rating.
With nastid MIA, thought I'd better do a post for him.
Hydrodec* 12/02/19
Fuelling Growth – Initiating with Buy
We initiate on Hydrodec with a buy rating and 100p target price.
Our view is predicated on the likely sharp increase in EBITDA and
cash flow as working capital inflows from the recent capital raise
drive improving capacity utilisation and operating leverage. In
our view, the shares currently price very limited operational
improvements, if any, and although we acknowledge that
refining is a technically challenging process, we believe the
Group’s expertise is sufficient to manage the increasing output,
driving revenue and EBITDA CAGR of 30% and 92% respectively
2018-21E.
Working capital to drive utilisation – We believe the Group can achieve
capacity utilisation of 85% in 2021 which drives 72% 2yr EBITDA CAGR as
the benefits of increasing capacity utilisation are realised with increased
throughput of working capital in to Hydrodec’s US facility. The operating
leverage is such that a 1ppt change in capacity utilisation in 2020 can
impact EBITDA by 2.6% and EPS by 5%, due to financial leverage. This
provides very strong risk-reward for execution, which we believe is not
appropriately priced in the shares at current levels.
Favourable utility market dynamics – The demand for transformer oil,
particularly in the USA exhibits fundamentally strong growth prospects,
providing a positive outlook for Hydrodec’s SUPERFINE™ oil. Recent and
forecasted investment in the US transmission network, along with an
increasing need to service an ageing infrastructure, in our view, provides
the foundations for this growth with attractive pricing dynamics for
Hydrodec in the utility markets.
Longer Term Capacity expansion – Hydrodec’s proprietary technology
and market opportunity suggests high utilisation is possible and strong
double digit returns on capital employed for incremental capacity reflect
scope for significant value creation for equity investors in the medium-tolong term.
Financial forecasts – Our forecasts represent 30% revenue CAGR and
92% EBITDA CAGR (pre-central costs), driven by improving capacity
utilisation from 70% to 85% and pricing uplift of c.30% from utility
customers over the next 3 years.
Attractive valuation considering growth – Hydrodec trades on 4.6x
EV/EBITDA, 9.4x P/E, 5.6% dividend yield and a 15% FCF yield (all 2020E).
Although we acknowledge execution is required through 2019, we believe
the existing assets and potential for high cash returns are extremely
attractive to equity investors at current levels.
They have 3-months from Dec 31st to report / update ... and 6-months to produce audited accounts.
Previously they've updated by Jan 31st ... let's hope it's worth the wait.
When’s the next trading update due. Feel like we need a bit of action and movement upwards....
Feels like that but the reality is the sp has only dropped 7p or under 10% in the last 3 months since the consolidation which is pretty good considering lack of news.
I would guess there is an ii who did not join in the placing wanting to sell out. With todays rns showing another ii increasing it's holding the sp may hold up but who knows for sure.
Falling litte every day
Looking at the trades the sp has obviously dripped lower on lack of interest and actual trades. All small trades going through. The actual price to buy is just under 70p and the sells being shown are buys. The 70p buy this morning is mine as well as the buy to show up soon of £5k. Was easy to buy, but I can only sell at £2.5k without going to NT. So this shows lack of interest which is understandable. Generally I prefer to avoid consolidated shares but I think this has held its price pretty well since the consolidation which is good. 70p is same as 0.7p pre consolidation, so basically at an all time low.
Still risk here, so DYOR.
Today's news is what I have been waiting on. I have taken a small holding again.
My primary concern when I sold was the amount owed to Andrew Black and I was concerned he would pick up HYR cheaply, possible from administration.
The placing previously this year has reduced the amount owed to Mr Black of £11.3m. £4.5m was paid off by him via debt conversion by taking that amount in shares. Another £3m was paid back from the placing. This leaves HYR owing him approx £3.8m. There was talk of paying this off asap.
Regarding the placing, £11.2 was the total amount made. I'm guessing it probably cost them in the region of £1m to do this but this is purely a guess. Subtract away the £3m paid to Mr Black and there is £7.2 left over. The company is now going to inject £3m into HoNA which will leave £4.2m over from the placing. My guess is this will of been used to pay off Mr Black as hinted at.
The last half year results showed HYR to have made $3.3m loss. This was mainly contributed by the Australian side of the business which they are now looking to dispose off.
So now HYR only has the American side now and Canton EBITDA was up $159k on previous H1. The best bit about Canton is last July it had EBITDA of $463k and August was meant to be similar, so in those two months alone, HYR has exceeded the previous 6 months.
This RNS has told us they now have full control of HoNA and are going to improve commercial efficiency of the plant as well as sorting out their feedstock problem. HYR will imo be close to profit making and certainly will be once Bomen is gone or relocated to the US.
Having agreed to spend this $3.8m shows they are confident on improving production but that they are financially ok now.
Going by last July and August EBITDA of Canton, improved efficiency and new contract supply from G&S for improved quantities of feedstock Canton could be making $6-$10m profit easily which would easily counter the negative impact of the Australian plant.
The real negative I see still is ofc Bomen plant in Australia. Will they be able to sell it, or relocate it and how much is it likely to cost.
Going by last July and August EBITDA of Canton
Tbf the sp has been pretty stagnant since the consolidation. Bearing in mind the market rerating this has held up ok. Shares will always slip a little on no news. For a decent movement either way this will need news from the company. As i said when i sold the other year, clarity is needed and it certainly does seem to be lacking. No one really knows which way this is going to go.
All this does is sp goes down .never any updates
End of January would be my guess ... do check previous history for further guidance. Bear in mind we have new management so they may have different ideas / agendas regards communicating. Chairman Moynihan suggested that we'd get regular updates from our new CEO. It hasn't happened which leads me to believe that others are dictating the communications strategy. Patience is required I regret to say.
Anyone know when the next trading update is due? It’s all gone very quiet.....
The consolidation seems to have killed off the market for now. This may have been part of the strategy. Hopefully some activity will be generated with future updates...
Over the last few days halifax will not let any trades in hyr go thru, buys or sells, keep saying service in these shares unavailable, if any one still holding is it the same on other platforms. Or have we been well and truly been shafted by the good Lord and his side kicks, where is all the good news we were promised.
Just having a rant as a bit pissed off with aim shares.
Checked HYR's website yesterday ... Dinwoodie now listed as CEO. Let's hope we don't have to wait too long for positive news.