Redhall ready for biofuel revolution

The Wakefield-based engineering support services firm yesterday said it has been handed more work on a bio-ethanol plant being built near Hull.

In February Redhall revealed it was preferred bidder on an 18m

contract at the site. Yesterday it said the deal has been signed and is now worth 30m.

Redhall's order book is now worth 130m compared to 115m in September.

Two of Redhall's acquired companies, Chieftain Group and Jex Engineering, will build and install pipework on the plant at BP's Saltend site.

The site is due to be completed by the end of October and the contract was won from Vivergo Fuels, a joint venture between BP, British Sugar and DuPont. It will derive the fuel from wheat, and the biofuel will then be mixed with conventional fuel.

"It's an area of the market we've focused on more recently. It's an area for future growth," said chief executive Simon Foster.

The European Union's Renewable Energy Directive sets the UK a target of 10 per cent energy from renewable sources in transport by 2020.

Executive chairman David Jackson said he is aware of several other planned biofuel plants in the North East and Humber region which

Redhall hopes to win work on. "There will be future construction in the next year," he said. "It's one of the first ones. If we we do well, which I'm sure we will, it won't be the last." He said the contract win vindicated the 18.6m acquisition of Newcastle's Chieftain Group in 2008.

"I've been saying for some time that the real reason why we bought Chieftain would come out within two years," he said. "This year we will really start seeing the results of this acquisition."

Redhall said the "enhanced reputation" Redhall has gained, following its acquisitive expansion, is helping it grow within energy and defence.

The group also won "substantial" tankage and engineering work for Chevron worth 15m over the next five years. At Sellafield nuclear plant it won a bid to commission a new boiler park, a deal worth 3.2m.

"Whilst the market is challenging, we are doing better than most," said Mr Foster. "We seem to be involved in many of the engineering projects in the UK, particularly on the energy side."

Redhall also works on the Astute nuclear submarine programme and analysts expect it to benefit from the Government's recent announcement of 300m extra spending on the fleet.

In the process sector, where Redhall works with companies such as food manufacturers, conditions "remain challenging". The group said it continues to review its cost base and is reallocating resources to more productive areas.

Redhall had cash of 7.4m at the end of March. "The strength of this position gives us confidence that we will achieve our full-year expectations," it said.

On path to being 'a serious national player'

Analyst Nick Spoilar at house brokers Altium Securities upped his

target price from 195p to 205p.

The group's shares surged 5.6 per cent to 150p.

"Recent share price underperformance ignores the positive trading momentum in key areas over recent months and the latter leads us to upgrade our target price," said Mr Spoilar. "The big theme is the continuing growth in energy and defence, where Redhall is embedded at key sites such as AWE Aldermaston, Sellafield and Barrow, as well as major oil refineries. These are areas where the company's technical services generate significant added value."

Analysts at Brewin Dolphin initiated coverage on Redhall with a buy recommendation.

"Management is ambitious, has a longer term aspiration to create a 500m-plus revenue business, and more immediately the group's balance sheet strength should facilitate earnings enhancing bolt-on acquisitions to augment organic growth," they said.

"We believe the building blocks are now in place to transform a number of niche engineering assets into a serious national player. We believe few other support services stocks offer this level of longer term growth potential."