Regaining momentum
Hydrodec is on track to resume production at the Ohio facility in May, with a 50% expansion in nameplate capacity compared with December 2013. The acquisition of Eco-Oil in April strengthens Hydrodec’s platform for UK production of re-refined oil. We adjust our FY15 estimates to reflect the acquisition, movement in oil prices, currency rates, relocation of the Australian operation and lower collection volumes in the UK recycling business, and revise our indicative valuation to £108m (14.5p/share).
Progress on execution of strategy
During FY14 Hydrodec worked towards reopening the Ohio facility specifying new equipment, which incorporates a revised design that gives improved process reliability, process flexibility, re-refining efficiency and output quality. The insurance claim, which paid out a total of $18.75m on final settlement, fully covers the cost of rebuilding the four original trains and covers the loss of business to 31 March 2015. The UK proposed lubricant oil re-refining programme was de-risked through an agreement enabling Hydrodec to use Chemical Engineering Partners’ established commercial process as the base technology, though an extension of the schedule for obtaining planning permits has pushed back expected commissioning by a year to end-FY17. The acquisition of Eco-Oil for £2.4m strengthens Hydrodec’s platform for the production of re-refined oil in the UK, adding feedstock collection capability and customers in a single transaction rather than through organic growth in OSS.
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