Gooch & Housego (GHH) has been quietly diversifying its business over the past couple of years after management singled out a heavy reliance on demand from industrial companies for specialised optical components as too risky. These results provided further proof that the strategy is working. For example, the addition of high-value aerospace and medical customers, combined with operational gearing, boosted the company's half-year adjusted operating profit by 20 per cent to £4m.
In a fragmented components market, the emphasis on bespoke optical systems helps cut down the number of contractors that large companies have to manage. As a consequence, the aerospace and life sciences segments experienced strong revenue growth of 22 per cent (to £3.14m) and 10 per cent (to £7.44m), respectively. That's particularly impressive, given that three years ago there were no sales at all to aerospace customers. It also helped offset a slight decline in demand from industrial customers, which account for over half of sales.
Chief executive Gareth Jones said the results showed the benefit of moving further up the value chain and concentrating on supplying complete systems to individual customers. This is reflected in an improvement in underlying operating margin from 12.1 per cent to 14 per cent. In time, analysts at broker Investec Securities envisage margins of 20 per cent as achievable. Investec expects full-year pre-tax profits of £9.4m and EPS of 29.3p, up from £8.2m and 26.4p in 2012.
GOOCH & HOUSEGO (GHH) | ||||
|---|---|---|---|---|
| ORD PRICE: | 495p | MARKET VALUE: | £109m | |
| TOUCH: | 485-510p | 12-MONTH HIGH: | 520p | LOW: 355p |
| DIVIDEND YIELD: | 1.1% | PE RATIO: | 18 | |
| NET ASSET VALUE: | 286p* | NET CASH: | £0.7m | |
| Half-year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 27.8 | 2.50 | 8.70 | 2.00 |
| 2013 | 28.9 | 3.32 | 11.2 | 2.30 |
| % change | +4 | +33 | +29 | +15 |
Ex-div: 19 Jun Payment: 26 Jul *Includes intangible assets of £21.1m, or 96p a share | ||||
