Hydro International

HOLD

09/03/2011 Robert Tyerman

Water treatment specialist Hydro International (HYD) has pleased investors with annual pre-tax profits up 33% to £2.4m and a £24m order book.

The AIM-quoted company, which provides innovative and environmentally sustainable water control and treatment products in the UK, USA and around the world, increased turnover a modest 3 per cent to £28.2m in 2010, as the flow of UK wastewater projects was stalled by the water industry's latest five-year periodic review, though the second half brought an acceleration.

Hydro, based in Somerset and with offices across the USA, says the second half improvement owed much to its 'Zickert Sludge Scraper' technology, which won a £15.6m contract to supply Thames Water's Beckford sewage plant. Stephen Hides, the company's Portland, Maine-based chief executive officer, says Hydro's stormwater operations suffered from stagnant construction activity outside Britain and the USA, though the key US market remained steady as publicly-funded projects rose and the company won some 'key contracts' for large highway projects in the North-East of the country.

Hydro, which has been looking for acquisitions and driving into newly environmentally-conscious South-East Asian markets, carried out its first 'Downstream Defender' installations in Malaysia last year and signed a distribution agreement in Mexico for flow control and treatment. The company, which ended last year with net cash up nearly threefold to £7m and an order book up 200% to £23.7m, is proposing a 10% dividend increase to 3.3p a share, covered by earnings 31% ahead to 10.43p a share.

Chairman Roger Lockwood concedes there may be 'short-term trading challenges', but is optimistic about long term prospects and the company's new focus on international expansion. House broker Arden sees pre-tax profits inching forward to £2.52m this year, with a speed-up to £2.8m on the cards for 2012.

Recommended by Growth Company Investor at 99p last year and again at 109p in January, Hydro shares now trade at 143p, yielding 2.3%. Hold on.