Join our community of smart investors

Gooch & Housego sees industrial laser demand recover

The photonics specialist benefitted from higher demand for its lasers for semiconductor and microelectronics manufacturing
June 1, 2021
  • The company’s adjusted operating profit jumped by almost 60 per cent in the six months to 31 March
  • Statutory profits were weighed down by restructuring charges

Gooch & Housego (GHH) generated a 5 per cent rise in revenue at constant currencies in the six months to 31 March, thanks to increased demand for lasers used in semiconductor and microelectronics manufacturing, as well as its products for medical diagnostics systems.

In the larger industrials business – which accounts for 45 per cent of total sales – revenue increased by 4 per cent at constant currencies to £26.6m. Higher sales of industrial lasers in Asian markets more than offset lower demand for sensing modules as large infrastructure projects were delayed.

Meanwhile, over in the life sciences division, revenue shot up by 11 per cent at constant currencies to £13.5m as the pandemic spurred demand for ventilators. Gooch & Housego acquired medical device specialist ITL in 2018, which makes a product that improves respiratory function and oxygen uptake as part of a ventilator system for patients in intensive care.

Overall, the company’s adjusted operating profit surged by 57 per cent in the first half of the year, to £5.4m, with higher sales volumes and cost cutting pushing the margin up by 3.2 percentage points to 9.2 per cent.

Gooch & Housego is consolidating its acousto-optic and precision optic manufacturing sites as part of this cost push. This process is expected to be “substantially complete” by the end of September, laying the groundwork for £1.8m of savings in 2022.

The reorganisation did lower overheads in the first half of the year, but £3.1m of restructuring charges pushed Gooch & Housego’s statutory operating profit down by almost two-fifths to £1.2m.

Excluding lease liabilities, net debt has come down by just over a quarter from the September year-end position to £4.7m, or just 0.3 times cash profits. The balance sheet is therefore in good trim to support further acquisitions and the company is “actively exploring” opportunities in the life sciences sector.

Looking at the second half of the year, the company has flagged currency headwinds, although it expects that some pandemic hurdles such as travel restrictions will ease. House broker finnCap is anticipating a full year adjusted operating profit of £13.7m, up from £11.2m in 2020.

The shares are currently trading at a pricey 31 times consensus 2022 earnings. However, Gooch & Housego’s near-term outlook is improving as industrial and medical laser demand recovers, and in the long-term, it will benefit from structural growth drivers for its ‘photonics technology’ such as the roll-out of 5G. Upgrade to buy.

GOOCH & HOUSEGO (GHH)   
ORD PRICE:1,344pMARKET VALUE:£ 337m
TOUCH:1,343-1,345p12-MONTH HIGH:1,420pLOW: 950p
DIVIDEND YIELD:0.3%PE RATIO:108
NET ASSET VALUE:445p*NET DEBT:11%
Half-year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201957.51.714.80nil
202058.50.672.104.50
% change+2-61-56-
Ex-div:24 Jun   
Payment:30 Jul   
*Includes £51.6m in intangible assets or 206p a share

Last IC View: Hold, 1,010p, 2 Jun 2020