Hightex: hoping to raise the roof

Membrane roof specialist Hightex is projected to grow profits strongly in the years ahead, having secured major contract wins for the 2012 UEFA European football championships in Ukraine and Poland, among others. And yet, this small-cap, which made maiden pre-tax profits in 2009, trades on a modest p/e that not only belies its strong growth prospects, but fails to do justice to the lofty ambitions of its management.

Though but a small company, Hightex is led by a distinguished board that includes recently appointed CEO Frank Molter, executive chairman Charles DesForges and corporate financier Charles Sebag-Montefiore, a cousin of historian Simon Sebag-Montefiore. Headquartered in Germany and with two factories in Poland and Thailand, Hightex makes membrane roofs and facades for large buildings and stadiums using the resilient synthetic materials PTFE (polytetrafluoroethylene) and ETFE (Ethylene tetrafluoroethylene).

Sebag-Montefiore says Hightex’s membrane roofs, incorporated into a number of famous buildings including the retractable roof at Wimbledon’s Centre Court, are popular for a number of reasons. ‘They are lightweight, and require less structural steel to assemble. As a result, in the construction of big stadiums and projects, shaving three months off the construction time is a big saving,’ he explains. Another bonus is that compared with glass roofs, membrane roofs offer superior energy efficiency and result in lower running costs.

However, one of their biggest advantages is safety and security. As Sebag-Montefiore explains, in the event of a terrorist attack, shards of flying glass ‘are likely to wound and kill many people’, whereas a membrane’s level of plasticity makes it a safer alternative to glass. Significantly, as Sebag-Montefiore points out, Hightex has already won a contract to provide the canopy for Terminal 4 at Heathrow.

Given such advantages, it is no surprise that demand for the group’s roofs and facades is rising and that contract momentum is building. Of late, Hightex has won contracts to develop a fixed roof system at the Warsaw National Stadium in a e13 million (£10.9 million) deal and a contract to supply and install the roof and cable system for the Kiev Olympic Stadium worth e18.9 million, while Hightex famously provided the roof for the flagship Soccer City stadium for this year’s FIFA World Cup in South Africa.

Intriguingly, Hightex has a number of prospective projects in development, including possibilities in Brazil, which will host the 2016 Olympics as well as the 2014 World Cup, for which the country will require a number of new stadiums in order to meet FIFA’s host nation requirements. Sebag-Montefiore says Hightex is ‘on the case’ of a number of projects in Brazil and flags up the fact that of 12 stadiums set to be built or refurbished ahead of the World Cup, eight are expected to opt for membrane roofs.

With the recession-hit Western countries currently scaling back or cancelling large construction projects, Sebag-Montefiore believes that the oil-rich Middle East could prove a further area of growth. ‘With their huge oil wealth,’ he reassures, ‘many countries in the Middle East have no plans to cut back on building projects.’
Alongside contract momentum, Hightex has been dramatically improving its financials, having returned to profitability in calendar 2009. On turnover increased by 23.5 per cent to e20 million, gross profits were doubled to e4.2 million and losses of e3.1 million turned around to maiden pre-tax profits of €800,000.

Hightex is now a business with impressive sales visibility. House broker finnCap forecasts growth in revenues to e30 million (£25.2 million) for the year to December, ahead of e40 million for 2011, with Montefiore noting that those revenues are already ‘booked’. And unusually for a company in the construction sector, Hightex is debt-free and sitting on a healthy € 4.6 million cash.

Based on forecast earnings per share of ¢ 1 (0.84p), Hightex shares, which have risen from a 52-week trough of 3.63p, are swapping hands for just under nine times earnings, a rating that still looks decidedly ungenerous. They should scale heights as further roofing deals come the company’s way, so buy and stash away.