Gas Turbine Efficiency

Although sales grew by 25% in the first half of 2009, cash constrained customers in the aviation sector have caused Gas Turbine Efficiency (GTE) to revise its full year forecasts.

The aviation industry, to which GTE and joint venture partner Pratt & Whitney provide engine-cleaning services, has been badly buffeted by the downturn. With global airlines having lost a combined £3.7bn in the first half of 2009, cash is constrained and projects are being delayed. Accordingly, CEO Steve Zwolinski admits GTE has seen a ‘significant slowdown’ in the second half, after sales climbed 15% to $3.9m (£2.4m) in the six months to June.

However, Zwolinski, who thinks this industry turbulence ‘is just an air pocket that has to pass through the system’, sees a silver lining. ‘With the cash constraint and environmental pressures, if you have a good solution, as we do, you can do something.’

The newer but larger part of the business, energy services, continued to grow fast in the first half, with revenues up 29% to $14.5m. There has been some delays here as well but ‘less impact’ says Zwolinski, who has been gearing up for expansion into Europe and the Middle East by making ‘significant senior hires’ to lead the team into the oil & gas market there.

But, for now, the picture is slightly blurred. On the plus side, GTE has net cash of $9.6m and a stronger pipeline of long-term contracts than ever before, though this is distorted somewhat in the short term by the ‘visibility of the timing of revenue' being 'diminished substantially’.

The market does not seem to have taken what is essentially a profit warning too badly, with the shares down 15% on the morning of results and still ahead of our April recommendation. We like the long term story, and advise investors to keep holding.