HYDRO International – the Zickert Sludge Scraper hits the headlines!

Hydro International (LON:HYD) , the provider of products for the control and treatment of storm and waster water yesterday announced a huge contract win totaling £15.6m for its innovative Zickert Sludge Scraper technology – great name!  The contract is with GBM, the joint venture of Galliford Try, Biwater Treatment and Mott MacDonald, and part of GBM’s wider £63m contract to upgrade the Beckton STW sewage treatment works under Thames Water’s AMP 5 investment programme. The Zickert Scraper technology is an innovative sludge transportation system for use in sedimentation tanks reducing operating and infrastructure capital costs when compared to conventional sludge scraper systems.The project, the largest in Hydro’s history, will include the installation of equipment to tanks equivalent to approximately 10 football pitches. Construction is expected to start in March 2011 and is due for completion in 2015.Hydro offers a strong balance sheet and finished the half year to 30th June 2010 with net cash of £720,000.  The group owns significant IP for its products and with manufacturing outsourced return on capital of over 20% is attractive. The group has weathered the storm (excuse the pun!) of recent years and flood control has moved up the agenda. There is clearly a need for the (so called) developed world to upgrade their ageing infrastructure but one wonders how this will be paid for in the current climate.  However, there is clearly a significant opportunity in developing markets for Hydro’s products and in the meantime the valuation at only c9.5x Dec 2011 estimates looks reasonable, especially with the latest Zickert order in the bag!