Demand for the services of Kentz Corporation, the Middle East-focused engineering contractor, is nothing short of sky-high. The group’s ‘backlog’ – of contracts not yet completed and new orders received – swelled from $594 million to $827 million (£302 million to £420 million) in the first six months of 2008, and Kentz claims future prospects of over $1 billion.

Founded in Ireland back in 1919, Kentz fell into difficulties three-quarters of a century later and had to be rescued from Irish examinership (equivalent to administration) by Malaysian businessman Tan Sri Razali, the current chairman. However, since then, growth has been very impressive, with sales having more than doubled between 2004 and 2006 under chief executive Hugh O’Donnell.

Providing mechanical, electrical, engineering, construction and management services for both industrial and infrastructural clients, Kentz has evolved into a well-regarded specialist player in the buoyant oil and gas, petrochemical, mining and metals sectors. Within this fertile domain, it already boasts a number of weighty, blue-chip clients, among them Shell, ExxonMobil, Mittal Steel and Anglo Coal.

Floated on AIM in February, raising £66.7 million gross (with certain shareholders selling shares), Kentz derives two-thirds of its sales from Kuwait, Saudi Arabia, Qatar and the UAE, followed by sub-Saharan Africa and the former Soviet Bloc. Future demand for the company’s services from these buoyant areas looks assured, while a great deal of undeveloped natural resources in the Middle East and the rest of the world, such as Brazil’s enormous oilfield discovery last November, offer further long-term growth possibilities.

Kentz has built a reputation for successfully delivering in remote and difficult environments, exemplified by its project for Exxon on the Sakhalin Island offshore Siberia. Not only that, but the company regularly delivers contracts in other business streams, such as the winning of a $208 million contract in Qatar, announced in May, to supply electrical systems for the huge Sidra medical research centre scheduled for completion in mid 2011.

In calendar 2007, sales climbed 47 per cent to $544.7 million and pre-tax profits increased 37 per cent to $34.3 million. In addition, there was positive news on profit margins, which expanded healthily to 6.3 per cent. In another year of healthy cash generation, net cash more than doubled to $124 million by the year-end, with the coffers then boosted by the net £15.6 million received at float.

Expanding fast, Kentz aims to accelerate growth by investing some of its deep pool of cash on a strategic acquisition in the oil and gas upstream industry. A purchase in this area, argues management, would reap bountiful benefits by providing cross-selling opportunities within Kentz’s global client base and would enable Kentz to be solely responsible for completing the entire engineering, procurement and construction process for both onshore and offshore oil and gas plants.

With Kentz recently flagging up a strong start to 2008, house broker Evolution’s full-year forecast of profits of $38.5 million and 24.8c (12.6p) of earnings look eminently achievable. Given Kentz’s current growth rates and excellent prospects in a sector with favourable dynamics, a prospective price-to-earnings ratio of less than 15 times looks particularly undemanding. Buy.

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Kentz Corporation	AIM	£115.21m	99.00p	0.00p
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