WORTHINGTON NICHOLLS (WNG)

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These companies are all previous recommendations from the Red Hot Portfolio that I have subsequently recommended and then sold from the portfolio at a later date. By no means are these companies intended to be buy recommendations for you to go out and invest money towards their shares. For the opportunity to start making serious money from the recommendations I am making now, just start your no obligation trial!

WORTHINGTON NICHOLLS (WNG): Time to sell - Jul 2006

RHPS Recommendation - SELL

Worthington Nicholls has committed the cardinal sin of announcing disappointing interim results just weeks after selling £20m of new shares to City investors. To add insult to injury Chief Executive Mark Worthington sold two million shares at 170p at the time of the placing and has now bought back 450,500 at 111p. Worthington Nicholls needs to make acquisitions in order to achieve its strategic objectives. For this it needs City support and to be able to attract potential vendors of other air conditioning firms. So this episode is very damaging.

WORTHINGTON NICHOLLS (WNG): Three More Acquisitions - May 2007

RHPS Recommendation - HOLD

Worthington Nicholls is buying two more air-conditioning installers, Woods Environmental Group and Euro Property Services, as well as Classic Interiors which redecorates rooms after air conditioning work. Worthington Nicholls is already supplying Classic Interiors with one-third of its workload. Worthington Nicholls is also raising £20m through a placing of new shares, some of which will be used to finance the expansion of its earlier acquisitions, Lumenglow and Project Air, which are both "exceeding expectations".

Worthington Nicholls is both operating in a fast growing market, and also has an acquisition strategy that appears to be working well. My target is 200p - but I may well revise this upwards as and when we get there.

WORTHINGTON NICHOLLS (WNG): Five New Hotel Clients - Apr 2007

RHPS Recommendation - HOLD

Worthington Nicholls has reported a "'very healthy pipeline of new orders, including work from five new hotel group clients." Integration of recent acquisitions Project Air Limited and Lumenglow Ltd is proceeding smoothly while Worthington Nicholls also reports interest from potential customers in Europe.

WORTHINGTON NICHOLLS (WNG): To Offer New Software Product to Hotel Customers - Mar 2007

RHPS Recommendation - HOLD

Software specialist Q2 Solutions, a supplier to the InterContinental Hotels Group, has appointed Worthington Nicholls as its preferred service provider for Europe, the Middle East and Africa. This is for the installation and maintenance of "ESCAP", a software product developed specifically for IHG's hotel brands that enables hotel managers to benchmark and monitor individual hotel engineering and maintenance performance. It is already used in 66 IHG hotels, and Worthington Nicholls is aiming to push it into a further 197. Worthington Nicholls will receive a one-off licence fee of about £5,000 on installation, and then annual support fees.

WORTHINGTON NICHOLLS (WNG): New 200p Price Target - Feb 2007

RHPS Recommendation - BUY

Sharecall: (0906 812 1210) 3299
After good results for the year to September 2006, Worthington Nicholls is now expected to make £6.2m pre-tax this year. This implies a high rating for the shares, but WNG has outstanding prospects.

In advance of EU legislation that requires all air conditioning systems to be replaced by the end of 2014, property owners are now being asked to provide an inventory of their system, and annual reports that describe action taken to comply with the new legislation. This is further focussing minds already considering the effects of last summer's hot weather. Hotel owners in particular seem intent upon installing air conditioning. Travelodge is to install air conditioning in its 20,000 hotel bedrooms and Premier Travel Inns, which owns 31,000 rooms, is likely to follow suit. Worthington Nicholls has far more experience of installing air conditioning in hotels than any of its rivals, and is strongly placed to pick up large contracts both in the UK and on the Continent. The only problem for Worthington Nicholls is how to capitalise on this opportunity, but it is training its own staff and remaining on the lookout for acquisitions. This story has much further to run. I have set a new 12 month target of 200p, and a buy limit of 130p.

WORTHINGTON NICHOLLS (WNG): More hotel contracts - Jan 2007

RHPS Recommendation - HOLD

Worthington Nicholls has announced new contracts with hotel groups, both in the UK and in Europe. Follow-on orders are likely as air conditioning becomes a hotel standard. Worthington Nicholls has acquired specialist electrical contractor, Lumenglow. Last year Worthington Nicholls subcontracted £3.1m of electrical work, but will now be able to take this work in house. The shares have shot through my 100p target, and I will adjust this after seeing the annual results on January 17th.

WORTHINGTON NICHOLLS (WNG): Just can't get enough - Dec 2006

RHPS Recommendation - HOLD

When a company places new shares, as Worthington Nicholls has just done, and the share price rises this is almost always a good sign. Usually it means that the lucky institutional investors who have received new shares like the story so much that they go into the market to buy more. We should be hearing results from Worthington Nicholls in early January, so although the shares have already hit my target I am holding on.

WORTHINGTON NICHOLLS (WNG) - Nov 2006

RHPS Recommendation - HOLD

Anticipating strong results
Sharecall: (0906 812 1210) 3299
The shares have been surging ahead, as investors look forward to Worthington Nicholls' first set of results. These will be for the year to September 30th, and should be announced before Christmas. Even at the higher share price, The rating of the shares is not excessive, especially in view of the very strong growth potential. I have raised my target price to 100p.

WORTHINGTON NICHOLLS (WNG) - Oct 2006

RHPS Recommendation - HOLD

Worthington Nicholls has won new contracts to install air conditioning for Macdonald Hotels and the Cairn Hotel Group. The latter is a new customer and Worthington Nicholls hopes for follow on business.

The £690m UK air con industry is set to double in 2007 - and one company is prepared to dominate. Buy now for 55% gains - Jul 2006

RHPS Recommendation - BUY

The UK market for new air conditioning systems was worth about £650m in 2005 and will probably be worth about £690m this year. Next year, though, this is forecast to soar to £1,170m, a level at which it will at least remain for several years. This promises an absolute bonanza for suppliers and installers of air conditioning systems, and no company is licking its lips with a bigger smack than the market leader in the business. Its shares have just been floated on AIM, and the name is Worthington Nicholls. It is gearing up to meet this massive business opportunity for which we have to thank our old friends, those legislators in Brussels.

Green legislation will provide a £7bn windfall for UK air con suppliers

The EU has decided that the standard refrigerant used in 70% of air conditioning systems, called R22, is depleting the ozone layer because it contains chlorine. So it has decreed that existing installed systems using R22 may be serviced until 2010, after which only recycled R22 may be used and then only until 2015. R22 must then be replaced by a new type of refrigerant called R410A.

This gas operates at five times the pressure of R22 - which means that all existing air conditioning systems will have to be replaced. One of the biggest manufacturers of air conditioning equipment, Daikin, has estimated that there are approximately 1m R22 units in use in the UK, and that it will cost £7bn to replace them all.

Companies already starting to replace their units.

This cloud does at least have a silver lining, because systems that use R410A are 40% cheaper to run. So with tax breaks that encourage the adoption of greener and more energy efficient systems, and with manufacturers of air conditioning units phasing out production of spare parts for non-compliant units, property owners such as Worthington Nicholls's customer Debenhams have decided that they might as well replace their air conditioning system without delay.

Worthington Nicholls was founded by the now executive chairman, Peter Worthington, in 1973. Today the group has regional offices in Bedford, Edinburgh, Barnet and Halifax, as well as its head office in Wilmslow. Now it looks set for rapid growth, and some of this is due to a new business model introduced by Peter's son, and chief executive, Mark.

Hotels are ripe picking for this air con marvel

Historically, Worthington Nicholls was employed as a subcontractor. That meant being pressed by the main contractor into uncompetitive tendering on the dubious promise of future work. And it left its own work programme at the mercy of the main contractor, making it impossible to predict accurately staffing levels and cash flows. To get around this Mark Worthington decided to approach the customers directly, offering its services as a principal contractor for major air conditioning refurbishment work. This way it could control costs, design, delivery, service and maintenance. This approach has proved highly successful, especially in the hotel industry. Here, not only do 54% of a room's renovation costs relate to air conditioning, but for every day that a room is out of service the hotelier potentially is losing revenue. Mark Worthington described to me his new approach. Worthington Nicholls designs and plans each project, and then quotes a fixed price - a big attraction to its customers. It will then close no more than 16 rooms and install new air conditioning within four days, using its own 109-strong team supplemented by subcontractors if necessary. This is a big improvement on standard practice, when typically an entire 32-room hotel wing would be closed for an indefinite period. Worthington reckons that renovation costs per room are cut by 22%, and there is a further benefit of £270 from higher room availability.

The 2012 London Olympics: 12,000 more reasons to invest

Air conditioning is becoming more commonplace. Traditionally it has been the preserve of 5 Star hotels. But the increased branding of the UK hotel estate is leading to widespread adoption of air conditioning, led by Holiday Inns which has decided to install it on its entire global estate. So whereas today only 34% of UK 3 Star hotels have air conditioning, this figure is expected to match the 67% level seen in the USA by 2010. With a three-year, £30m contract for Holiday Inns, and other customers such as Queen's Moat Houses and MacDonald Hotels, Worthington Nicholls already supplies 50% of the 3 Star-plus UK hotel market, which will shortly be swelled by the 12,000 new rooms to be built for the 2012 Olympic Games.

Retailers are also recognising the benefits of a controlled shopping environment.

Today 60% of air conditioning sales are made to offices, retail outlets and the industrial sector, but still only 4% of retail outlets and restaurants and 7% of offices have it. So as we start to expect air conditioning, demand is likely to be seen from such businesses. About 66% of group revenue comes from the installation and commissioning of air conditioning, while regular maintenance of over 1,000 sites in the UK and Ireland accounts for a further 20%. The balance comes from another activity with excellent prospects, Ventilations Hygiene.

A great time to be in the grease-busting business

Back in 1997 a fire at the Heathrow airport branch of Burger King resulted in the cancellation of 300 flights. This was traced back to the ducts above a fat fryer, which were packed with grease and were set alight. Worthington Nicholls have a team, soon to be armed with a new automatic grease duct cleaning machine, which literally scours out the grease by hand. New Fire Safety Regulations, to be enacted this year, will require all non-domestic premises to clean grease extraction systems regularly. This seems certain to increase demand for Worthington Nicholls, which already serves over 270 customers including McDonalds, Burger King and Little Chef.

Target 55% in 12 months from the UK's largest air con supplier

But for the time being the focus of attention is likely to be air conditioning. The industry dates back to its invention in the 1960s and is populated by small "man and a van" operations, many of which are possible acquisition targets. This gives Worthington Nicholls a great opportunity to grow its market share of 5%, modest but still enough to make it the largest player in the UK, and to enable it to extract favourable price and warranty terms from Daikin.

Worthington Nicholls has wasted no time in using its new status, and only last week acquired Project Air Limited for £4.6m payable in a mixture of cash and shares. Given that Project Air made a post-tax profit of over £750,000 in its latest financial year, the deal hardly looks expensive and, with customers like Hamleys and Phones 4 U, it considerably strengthens its presence in the retail sector.

This deal marks the beginning of what should be a long period of expansion for Worthington Nicholls, and makes it an exciting and highly promising stock market newcomer. Buy the shares now for a 12-month target of 80p, a 55% rise from its current price.

RHPS Verdict: Apart from its contract with Holiday Inns, Worthington Nicholls has a strong order backlog, giving confidence to the forecasts shown in the table on page 3. With a leading position in a market set to double in size, and the opportunity to grow through acquisition, Worthington Nicholls could hardly be better placed.

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The figures refer to the past and past performance is not a reliable indicator of future results. The past recommendation highlighted here is a small company share.By their nature, such investments can be relatively illiquid and, as a result, hard to trade. This makes such shares more risky than other investments. Please seek independent financial advice if necessary. These figures do not include the bid-offer spread, unless otherwise stated. Since the service began on 01/12/98 running through to 31/07/07, the average overall performance of the shares recommended is up 19.91%.All gains exclude dividend payments and dealing costs, unless otherwise stated. Profits from share dealing are a form of income and subject to taxation. Levels and bases of, and reliefs from, taxation are subject to change, and depend on individual circumstances. Full portfolio available on request. Fleet Street Publications Ltd is authorised and regulated by the Financial Services Authority. FSA No. 115234.

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