[Nick Hargrave]

I want to clearly state at the outset that this is currently a short-term investment idea that I have only recently started due diligence, but with increasing coverage of upcoming news flow I wanted to publish just a short overview for people to review.

Harland & Wolff (HARL) has 2 segments: a gas storage development (the Islandmagee Energy Hub) and a ship building / repair business. The business was, until recently, listed as InfraStrata and focused solely on the gas storage development, but management were of the view that the time and cost to develop and operate that operation alone didn’t provide a viable business strategy. In 2019, the business began to diversify and began acquiring shipyards around the UK, starting with Belfast in 2019 and subsequently renaming the business Harland & Wolff. The business now has 4 shipyards in the UK (Belfast, Appledore, Methil and Arnish) and each site is developing their revenues and pipeline well.

The current focus of interest, however, is that the company has a c.£12m market cap while being part of 2 shortlisted bid consortia for the UK’s Fleet Solid Support contract, a £1.68bn deal to build Royal Navy supply ships in the UK. It is understood that the government will name the preferred bidder in Q4 22 and in either case, HARL is in line to win significant work relative to its current value. In particular, the scope of its role as part of the Team Resolute bid is much greater as they are a key subcontractor. All told, the company reports a weighted revenue pipeline of >£1bn

While there is plenty of competition in the UK shipbuilding market, most notably from Babcock and BAE, it is understood that their yards are operating at capacity for the foreseeable future on current and likely government contracts. Given the potential of the pipeline and the fact that they yesterday announced a debt refinancing to increase their facility from £70m to £100m (including the issue of 15m warrants at 6.2385p) to enable their current contract negotiations, the current value of the company presents an interesting risk/reward opportunity on near term news flow, while noting that further diligence is required to establish a long-term investment proposition.

This is the link to the latest investor presentation: PowerPoint Presentation (harland-wolff.com)

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[Nick Hargrave]

And the contract has now been awarded – a fantastic result

https://www.londonstockexchange.com/news-article/HARL/fleet-solid-support-contract-preferred-bidder/15718451

[Nick Hargrave]

https://www.baesystems.com/en/article/bae-systems-awarded-4-2bn-contract-to-build-five-more-type-26-frigates-in-glasgow

Part of the thesis is that key competitor yard capacity is utilised for the foreseeable future, and BAE’s announcement on a new contract win requiring a new hall build to accommodate the work would seem to confirm this. BAE are part of the Team UK consortia bidding against Team Resolute, and with so much UK work now confirmed under this contract, it may make it politically more palatable to award the FSS contract to a consortium with a larger international component (Team Resolute’s main contractor is Navantia of Spain) while still supporting UK industry. This is clearly all conjecture, but key to the risk/reward proposition presented here

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