Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

Norman Hay - it's been a great share over the last 3 years and it looks like there is more excitement to come

Norman Hay, the AIM quoted diversified industrial group involved in chemical sealants and surface coatings came out with another pleasing announcement today.

Norman Hay (a nice straightforward name is always pleasing, remember James Halstead) describes itself as the UK's number one surface coatings company and a world leader in the supply of sealant chemistry for the automotive and construction industries. The Company's advanced chemical products and processes enable metal components of all sizes to be protected when operating in harsh environments, and are widely used in the oil and gas (that’s fashionable), aerospace and general engineering industries.

After having visited their Coventry site 3 years ago we have been keen followers of this quirky little business and the shares haven’t disappointed.

It announced this week that conditional agreement has been reached to sell the Company's Coventry freehold site to a subsidiary of UNITE Group plc, the UK's number one student hospitality company.

I love the following paragraph from the announcement:

‘For some time Norman Hay plc has anticipated that its city centre site in Coventry could not continue to absorb the changes required for the Group's future.’

To translate, management realised some time ago that they were sitting on a potential gold mine!

The current net book value of the asset is £1,840,000 and depending on the actual planning permission granted, the site will achieve a value of between £7,756,000 and £9,265,000.

To put things into perspective, the current market capitalisation of the entire Norman Hay group is c£17m.

The sale proceeds will be used in part to fund the relocation costs, with the remaining proceeds being reinvested in the Company to fund future growth. I suspect that there might also be a little left for a distribution to shareholders if everything works out as planned.

The bad news is that the sale of the property is also conditional upon the release or modification of a restrictive covenant which affects part of the site.

With the Hay family the largest shareholders and very limited share liquidity Norman Hay is the sort of AIM stock that is much more appealing to the small private investor than the big City institution.

It’s also rewarded those that were prepared to go through the numbers (and they aren’t very big or complicated) and realise that, despite its small size, this is a very attractive, cash generative little niche engineering business.

The shares currently trade at just under 12x 2007 estimates-you guessed it, only the house broker covers them-and they yield just over 3%.

The shares are up approximately 300% over the past 3 years and it looks like there could be more excitement to come!


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