BUY OR SELL-After tumble, are Hampson shares a good buy?

* Higher debt pile worries some analysts

* Others say long-term contracts underpin future growth

By Rhys Jones

LONDON, Aug 17 (BestGrowthStock) – British aero engineer Hampson
Industries (HAMP.L: ) can ride out last week’s 68 percent share
price drop as long as key orders from Boeing (BA.N: ) come in
ahead of a crunch debt covenant test in December.

Hampson, which makes tools used by planemakers, has been hit
by a recent slowdown in orders after delays to projects such as
Beoing’s 787 Dreamliner led it to warn on its full-year profit.

Some analysts believe investors should look beyond this
setback and place bets on future growth likely to be driven by
its long-term contracts with large planemakers, whose projects
are getting back on track after a two-year industry downturn.

But others said the sell-off is because of renewed concerns
about Hampson’s indebtedness, which has grown a fifth to 99
million pounds ($155 million) since the year-end.

Prior to its profit warning Hampson’s shares had shed 10
percent in the previous six months, worse than the FTSE All
Share Aerospace & Defence Index’s (.FTASX2710: ) 5 percent drop.
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For a graph comparing Hampson’s share price against its
wider sector, click on:
http://graphics.thomsonreuters.com/gfx1/SBrb_20101308112202.jpg
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BUY

“Boeing’s 787 is closer to full production, as is Airbus’
(EAD.PA: ) A350, which are positive drivers,” said Arbuthnot
analyst Michael Blogg, who currently rates the stock a ‘buy’.

“The orders are there — it’s a bit like a dam which at some
stage will break and a flow of shipments will come through.”

The company recently secured a 6 million pounds tooling
contract from Boeing and analysts expect more orders to follow.

Hampson said, based on recent talks with Boeing, it was
confident more lucrative orders would come through in the second
half, and that its other units were delivering growth.

“Our expectations for the group’s other businesses are
largely unchanged,” said Investec analyst Chris Dyett — the top
ranked analyst following Hampson on Thomson Reuters Starmine —
who has a ‘hold’ rating on the stock because the issues are
limited to Hampson’s U.S.-based Odyssey tooling business.

Although Odyssey has been loss-making this year, its
composite and aerospace components units are performing well,
helped by secure, long-term contracts on government-backed
military programmes such as the Joint Strike Fighter jet.

SELL

Other analysts are concerned that a significant reduction in
Hampson’s profitability means its debt levels look concerning
relative to covenant limits.

Its covenants are due to be tested again next month — the
limit is 3.5x net debt/EBITDA — again in December (3.25x) and
then March 2011 (3.0x).

“The December test looks as if it could be tight. Our
forecasts suggest a covenant breach at March 2011,” said Brewin
Dolphin analyst James Tetley, who has downgraded Hampson to a
‘sell’ from ‘hold’ in the absence of any “reassuring news”.

Despite Hampson’s optimism, a lack of clarity on the status
and value of its future orders continues to concern analysts.

“The timing of order conversion remains unpredictable,” said
Tetley, who added that the low price could tempt a predator.

($1=.6383 Pound)
(Editing by David Cowell)

BUY OR SELL-After tumble, are Hampson shares a good buy?