Gooch & Housego bets on subsea rescue plan

It could be argued that the contrasting performances of the business lines, partly a consequence of the ongoing US/China trade dispute, points to the logic behind the photonics (light sciences) group’s attempts at diversification. Yet different business lines usually mean different rates of marginal profitability, so even though overall sales were up on the prior year, earnings were constricted by a near five percentage point decline in the gross margin. However, this was also attributable to further investment in the fibre optics business, the benefits of which are expected to become apparent in the current financial year. 

The result might seem at odds with what management describes at the "twin strategic pillars of further diversification and moving up the value chain", but it would be churlish to dismiss these objectives simply because of short-term weakness in the industrial laser market. Management believes that "innovation will ultimately drive future growth in the industrial laser sector", but the comments may have been delivered in hope rather than expectation.

At any rate, shareholders can realistically look forward to further growth in the fibre-optics business, as capacity has been increased to match rising demand for high-reliability fibre couplers used in subsea networks to boost signal strength and increase bandwidth.

The global subsea network is expanding rapidly as digital technologies expand across the globe. Google has become the first major non-telecom company to build a private international cable, while a host of cabling projects, such as Havfrue/AEC-2, have been driving demand for specialist couplers. Other digital leviathans such as Facebook (US:FB) and Microsoft (US:MSFT) are reliant on subsea cables as they offer more capacity and have lower latency (latency limits the maximum rate that information can be transmitted).

Arden Partners forecasts adjusted EPS of 51.7p for the year to September 2020, up from 46.7p in FY2019.