Engineer Hayward Tyler (HAYT:AIM) is worth a closer look by investors after Baillie Gifford fund manager Richard Sneller snapped up a personal stake representing 6.5% of the business.

At the current price of 86.5p that stake is worth £3.1m.

Hayward was set up in 1815 and designs and manufactures specialist motors and pumps for energy, petrochemical and defence customers. It sells to countries around the world and has been investing heavily in new capacity.

As well as a vote of confidence from Sneller, Hayward’s attractions include a global market share estimated at 60% in large scale boiler circulating pumps as well as a strong aftermarket offering which creates recurring revenue streams.

Fund manager digs deep 

Sneller, who manages the Baillie Gifford Emerging Markets Growth (GB006017825) fund, is understood to like Hayward’s exposure to markets including the Asia-Pacific region where it generates 25% of its sales.

Another 25% is generated from the US with the remainder split across the world. Despite an attractive geographical spread of earnings, Hayward’s performance in recent years has been held back by its US dollar cost base, which is being squeezed higher because of the strength of the US economy and its currency.

Hayward’s annual report says every 10% gain in the dollar versus sterling shaves around £500,000 from profit.

Expanded UK production capacity in Luton could help limit exposure to dollar costs on new pumps in the future.

Aftermarket revenues, which are sales of maintenance services for Hayward’s 2,300 boiler circulating pumps around the world, comprised more than half the company’s revenue in its last financial year and close to all its profitability.

Chief executive Ewan Baker-Lloyd owns 7.6% of the business and Hayward has a well-aligned management team and knowledgeable investors willing to back them.

Short-term pressures 

While long-term demand for Hayward’s products looks good, in the short term earnings and company’s share price are volatile. Baker-Lloyd said the business registered a loss of around £5.5m in the six months to 30 September 2016.

It now needs deliver £12m of operating profit in the second half of its financial year to hit analyst earnings estimates.

We remain sceptical this target will be achieved but the market might forgive an earnings miss if Hayward is able to provide a positive update on its order book for new pumps in the years ahead.

Sneller’s stock purchases are a big endorsement of Hayward’s business model, yet investors should expect near-term volatility in the share price. 

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