Pressure Technologies

Cylinders specialist Pressure Technologies recently disappointed and delighted in equal measure, by issuing a profits warning and announcing an attractive acquisition on the same day.

Sheffield-based ‘Pressure’, which through its Chesterfield Special Cylinders (CSC) arm, makes, designs and refurbishes high-pressure cylinders used in the offshore oil and gas and defence markets, said that since its year-end (3 October), the company had won expected levels of orders it had been counting on from major customers. However, Pressure warned of some slowing in converting orders for oil and gas support services projects, with spending patterns affected by ongoing economic uncertainty.

Though Pressure could yet bag enough orders to meet this year’s numbers, management prudently warned pre-tax profits are likely to be ‘up to £0.9m lower than market expectations’. Accordingly, house broker Fairfax downgraded 2010 sales and profits forecasts from £22.5m to £21.1m and from £4.7m to £3.8m respectively, with 2011 profits reduced from £5.7m to £5.3m.

Though disappointing, Pressure softened this blow by unveiling the acquisition of Wales-based Al-Met for up to £2.25m in cash. Al-Met, a profitable, niche maker of precision-engineered valve wear parts used in the oil and gas industries, looks a cracking deal, diversifying Pressure’s product and client base and adding a much-needed extra dimension to prospects.

With its emerging renewable energy division, Chesterfield BioGas (CBG) continuing to make headway, Pressure is now forecast to deliver 2010 earnings per share of 23.8p and an increased dividend of 7.2p. On those estimates, the shares, which dipped from around 240p on the earnings alert, offer a 3.3% yield and trade on a prospective p/e of 9.1.

That rating fails to do justice to Pressure’s strong cash generation (analysts are looking for year-end net cash of £6.6m) and long-term growth exposure to the oil and gas industry. Investors prepared to sit tight should be rewarded over the medium-to-long term.