Earlier this year, shares in engineering group Goodwin (GDWN) spiked following release of a third-quarter update indicating that trading over the April 2017 financial year was unlikely to be as difficult as it had once feared. However, a cursory glance at the group's preceding full-year figures begs the question 'difficult compared to what?'
With operating profits down 38 per cent to £12.7m, you can't help but conclude that Goodwin's exposure to the extractive industries must have soured medium-term expectations to an alarming degree. That pessimism may well reflect the perceived vulnerability of small-cap stocks to markets in downtrend; small is rarely beautiful where cyclicality is concerned.
The Stoke-based firm has been diversifying its business mix, while cutting prices in a bid to ameliorate unfavourable trading conditions. Sacrificing the margin to prop up the top line is a legitimate response; but pursuing this strategy indefinitely obviously isn't an option.
The group cited the slowdown in China's economy and a fall-away in spending in jewellery markets as reasons why business performance within the refractory engineering segment has suffered. But Goodwin's businesses also serve oil and gas markets, which, as management helpfully points out, have been subject to cancelled or delayed projects to the tune of $530bn (£397bn) - that's a fair-sized elephant in the room.
GOODWIN (GDWN) | ||||
---|---|---|---|---|
ORD PRICE: | 2,075p | MARKET VALUE: | £149m | |
TOUCH: | 2,050p-2,100p | 12M HIGH / LOW: | 2,525p | 1,430p |
DIVIDEND YIELD: | 2.0% | PE RATIO: | 17 | |
NET ASSET VALUE: | 1,199p* | NET DEBT: | 24% |
Year to 30 Apr | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
---|---|---|---|---|
2012 | 108 | 12.3 | 124 | 32.1 |
2013 | 127 | 20.3 | 212 | 35.3 |
2014 | 131 | 24.1 | 264 | 42.3 |
2015 | 127 | 20.1 | 209 | 42.3 |
2016 | 124 | 12.3 | 123 | 42.3 |
% change | -3 | -39 | -41 | - |
Ex-div: 8 Sep Payment: 7 Oct *Includes intangible assets of £17.6m, or 244p a share. |