Exciting opportunities in the pipeline for Goodwin

Engineering firm Goodwin (GDWN) enjoyed a flurry of activity in the first half of its financial year. Sales of its lithium battery fire extinguisher shot up, while it managed to flog more investment casting powder to China, where demand for jewellery is normalising post-Covid. As such, revenue rose by 9 per cent to £97.6mn and its operating profit jumped by 28 per cent to £12.5mn

Management predicted that increased levels of activity would continue throughout the second half of the year, generating a similar level of profitability.

This is clearly good news, but it has resulted in higher levels of working capital, which has caused Goodwin’s cash position to deteriorate. Overall net debt stands at £54.6mn, compared with £46.1mn last year. 

There is also some uncertainty around future business. Management said “the slow pace of third party decision making” had been “a source of frustration” in the period, and “major opportunities” within the mechanical engineering division have still not come to pass. Goodwin’s radar business, for example, has yet to get going despite earlier claims that it would transform the company’s workload. 

The group has also been investing heavily in a resin production company called Duvelco. The Duvelco production plant is due to be operational by June 2024, but set-up has involved a lot of upfront costs and the ultimate return is unknown.

Goodwin’s long-term thinking reflects the fact that it is essentially a family firm: the Goodwin family owns more than half of the shares and the sixth generation is now at the helm. This has yielded some excellent results, and there seem to be exciting opportunities in the pipeline. Before we commit, however, we could like to see some of the bigger projects come to fruition. Hold.

Last IC View: Hold, 3390p, 3 Jan 2023