Goodwin expects “modest” increase in pre-tax profits

The threat of further windfall taxes and increased scrutiny in the approvals process provide major disincentives for companies engaged in oil and gas production. Reluctance to commit upstream capital has a negative impact on service providers to the industry. So, given recent UK government intervention in this area, it’s unsurprising that engineering group Goodwin (GDWN) has moved away from this corner of the market into other areas of business.

The refocus on end markets appears to have had a wholly beneficial impact on the group’s workload; up by 54 per cent at the half-year mark to £242mn. The mechanical engineering division has been building volumes within the military and nuclear waste reprocessing markets, both of which offer counter-cyclical benefits.

The refractory engineering division has also been performing strongly, but it may be premature to imagine that capital spending within the mining industry is set to pick up appreciably given wider economic challenges.

Chairman Timothy Goodwin said that the wider business uplift relates to “US and UK government procured components for military ships and boats, nuclear power, along with nuclear waste storage products”. This has driven the group top line, while operating profits were up by a fifth to £9.8mn.

Operating cash flow was held in check by increased working capital provisions, but cash pressures should ease over the medium to long term as capital investment programmes come to an end at the Hoben International and Duvelco businesses.

The increased workload should underpin sales growth, but deteriorating macroeconomic and geopolitical events mean that some companies have become more hesitant to implement capital programmes. Therefore, management now guides for a “modest increase in annual pre-tax profit rather than a substantial increase”. Hold.

Last IC view: Hold, 3,153p, 16 Dec 2021