Companies: HYC    ILX   

‘We were a turnaround story. That was phase one. But now we are in an ambitious phase two, having set the platform for excellent performance.’ So said Tim Wade, frank chief executive of Hyder Consulting, at our recent meeting shortly after the posting of strong full year figures to March.

I wrote up the many merits of the engineering design consultancy here a year ago and, having met Wade and financial and commercial director Simon Hamilton-Eddy once more, I’m keen to update on developments.

Those 2004-05 numbers showed an 81 per cent up-tick in profits to £4.4 million, north of forecasts, thanks to improvements in Asia Pacific and the Middle East. Turnover was £136 million, up from £122.3 million, thanks to acquisitions and tasty growth in Australia. Wade also flagged up ten per cent growth in the order book to £185 million.

Wade’s margin quest continues

Part of the turnaround away from prying City eyes has involved a changing of the culture of the business. Wade says the company is now staffed by people valued by the clients, and who are focused on service quality and on long-term relationships. ‘These measures have helped turn us round to margins of four per cent,’ enthuses Wade, ‘and they’ll take us to six per cent.’

The tight-knit management duo is making consistent strides towards that six per cent benchmark. Further down the track, Wade and Hamilton-Eddy have loftier ambitions of driving the margin within reach of revered sector rivals White Young Green and RPS, businesses delivering returns of around nine and 15 per cent respectively.

Wade believes he will get these by increasing the proportion of higher value-added advisory and design work, where clients pay on value rather than price, and making more savvy infill acquisitions. ‘Our differentiator with clients is that we understand their industries and their issues. We like to think that we are so close to them that if they’ve got the work, then we feel we have got it also.’

On the acquisitions front, Hyder recently snapped up ‘Aussie’ engineering consultancy Weathered Howe, establishing a presence in the fastest growing area of Australia, Queensland. This prompted Ian McInally of shop broker Brewin Dolphin to upgrade his 2006 numbers. Investors should expect profits of £6.2 million, and earnings of 18.2p, placing the 194p shares on a paltry forward rating of 10.6 times. In my view, that’s too low.

Great Scott’s about-face

Another turnaround yet to achieve the right valuation is AIM-listed education and training punt ILX, fronted by straight-shooting chief executive Ken Scott. ‘We are on our way to becoming a £20 million turnover business,’ explains Scott, who is understandably piqued by the market’s lack of appreciation for the transformation he has carried out in his three years at the helm.

Recent figures for the year to March from the transformed group revealed a return to profits of £374,000, against losses of £257,000, on turnover more than doubled to £3.9 million, thanks in part to his well-judged recent acquisitions.

Scott says he is attacking fast- growing markets, eyeing further deals, and an impending capital reduction will give ILX the ability to pay dividends in coming years. With a market value of £8.4 million at the current 98p share price, I feel ILX is looking a bit unloved.