Gooch & Housego Net Income dropped on 18.8% while Revenue jumped on 11.5%

27 Nov 2018 • About Gooch & Housego ($GHH) • By InTwits

Gooch & Housego reported FY2018 financial results today. Here are the key drivers of the company's long term financial model:

Gooch & Housego is a growth stock: FY2018 revenue growth was 11.5%, 5 year revenue CAGR was 14.6% at FY2018 ROIC 8.3%
Gooch & Housego has medium CAPEX intensity: 5 year average CAPEX/Revenue was 5.5%. At the same time it's a lot of higher than industry average of 2.3%.
CAPEX is quite volatile: £6m in FY2018, £6m in FY2017, £10m in FY2016, £3m in FY2015, £2m in FY2014
The company has business model with low profitability: ROIC is 8.3%
It operates with medium-size leverage: Net Debt/EBITDA is 0.6x while industry average is -0.6x

Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.

Revenue and profitability

The company's Revenue jumped on 11.5%. Despite revenue decline the EBITDA margin expanded. EBITDA Margin jumped on 11.9 pp from -3.7% to 8.2% in FY2018.

Gross Margin decreased slightly on 1.0 pp from 41.1% to 40.1% in FY2018. SG&A as a % of Revenue increased slightly on 1.7 pp from 23.6% to 25.3% in FY2018.

Net Income margin decreased on 2.2 pp from 7.9% to 5.8% in FY2018. During FY2014-FY2018 Net Income margin topped in FY2015 at 9.5% and was declining since that time. The efficient tax rate was 28.6% in FY2018.

Investments (CAPEX, working capital and M&A)

In FY2018 Gooch & Housego had CAPEX/Revenue of 4.7%. CAPEX/Revenue increased slightly on 0.80 pp from 3.9% in FY2015 to 4.7% in FY2018. Average CAPEX/Revenue for the last three years was 7.0%. During the last 5 years CAPEX as a % of Revenue topped in FY2016 at 11.3% and was declining since that time.

Return on investment

The company operates at low ROIC (8.3%) and ROE (6.9%). ROIC decreased on 3.8 pp from 12.1% to 8.3% in FY2018. ROE decreased on 2.5 pp from 9.4% to 6.9% in FY2018.

Leverage (Debt)

Debt level is 0.6x Net Debt / EBITDA and 1.7x Debt / EBITDA. Net Debt / EBITDA surged on 1.4x from -0.8x to 0.6x in FY2018. Debt jumped on 161% while cash dropped on 26.5%. During FY2014-FY2018 Net Debt/EBITDA bottomed in FY2015 at -1.1x and was growing since that time.

Gooch & Housego has good short term financial stability: Interest coverage ratio (ICR) is 15.4x. Gooch & Housego has no short term refinancing risk: cash is higher than short term debt (25,910.7%).

Average interest expence charged on company's debt was 2.3% in FY2018.

Valuation and dividends

Gooch & Housego's trades at EV/EBITDA 19.9x and P/E 47.2x.

The company paid 41.6% of Net Income as dividends in FY2018.

Management team

The company has 0.41% shares owned by insiders.

At the end of financial year the company had 866 employees. Average revenue per employee in FY2018 was £144,207.

Financial and operational results

FY ended 30 Sep 2018

Gooch & Housego ($GHH) key annual financial indicators

mln. £	2014	2015	2016	2017	2018	2018/2017
P&L
Revenue	70.1	78.7	86.1	112.0	124.9	11.5%
Gross Profit	28.4	31.0	32.3	46.1	50.1	8.7%
SG&A		16.0	17.9	26.4	31.6	19.5%
EBITDA	9.4	15.6	14.8	19.3	17.6	-8.9%
EBIT					10.8
Interest expence					0.7
Tax					2.9
Net Income	5.4	7.5	7.0	8.9	7.2	-18.8%
Stock Based Compensation					0.7
Balance Sheet
Cash	17.1	22.6	23.2	26.4	19.4	-26.5%
Inventory					25.9
Accounts Payable					25.3
Short Term Debt	8.0	0.0	0.0	0.0	0.1	1,150.0%
Long Term Debt	0.4	5.2	11.5	11.5	30.0	160.7%
Cash flow
Capex	1.9	3.1	9.7	5.8	5.8	0.9%
Dividends					3.0
Ratios
Revenue growth	10.8%	12.3%	9.3%	30.2%	11.5%
EBITDA growth	-29.9%	66.5%	-4.8%	30.3%	-8.9%

Gross Margin	40.5%	39.4%	37.5%	41.1%	40.1%	-1.0%
EBITDA Margin	13.4%	19.8%	17.3%	17.3%	14.1%	-3.2%
EBIT Margin					8.6%
SG&A, % of revenue		20.3%	20.8%	23.6%	25.3%	1.7%
SBC, % of revenue					0.5%
Net Income Margin	7.7%	9.5%	8.2%	7.9%	5.8%	-2.2%
CAPEX, % of revenue	2.7%	3.9%	11.3%	5.2%	4.7%	-0.5%

ROIC	6.8%	13.6%	10.8%	12.1%	8.3%	-3.8%
ROE	8.0%	10.1%	8.4%	9.4%	6.9%	-2.5%
Net Debt/EBITDA	-0.9x	-1.1x	-0.8x	-0.8x	0.6x	1.4x
Interest expence / Average debt					2.3%
People
Insider ownership					0.4%
Employees					866
Revenue/Employee, th. £					144

Peers in Electronic & Electrical Equipment

Below you can find Gooch & Housego benchmarking vs. other companies in Electronic & Electrical Equipment industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %


Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
Image Scan Hldgs ($IGE)	-13.5%	-22.2%	94.1%	51.9%
Flowgroup ($FLOW)	141.9%	21.1%	144.6%	39.8%
Walsin Lihwa Corp ($WALS)		-8.4%	-4.0%	17.0%
Stadium Group ($SDM)	-1.1%	29.0%	-1.5%	15.2%
Holders Technology ($HDT)	-5.5%	-16.9%	-4.4%	14.1%
Median (16 companies)	-4.5%	-1.4%	-1.2%	6.9%	8.2%
Gooch & Housego ($GHH)		12.3%	9.3%	30.2%	11.5%

Top companies by Gross margin, %


Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
Prophotonix Ltd ($PPIR)			45.4%	44.6%
Zytronic ($ZYT)	36.6%	41.9%	42.8%	41.1%
Elektron Technology ($EKT)	34.8%	35.6%	37.2%	39.1%	49.7%
Image Scan Hldgs ($IGE)	30.7%		42.3%	38.3%
Maruwa Co Ltd ($MAW)	32.8%	30.0%	35.9%	36.9%	43.1%
Median (14 companies)	29.2%	24.1%	30.5%	29.1%	35.3%
Gooch & Housego ($GHH)	40.5%	39.4%	37.5%	41.1%	40.1%

Top companies by EBITDA margin, %


Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
Zytronic ($ZYT)	22.9%	27.8%	25.6%	28.8%
Maruwa Co Ltd ($MAW)	17.8%	14.7%	19.6%	21.4%	28.7%
Morgan Advanced Materials ($BA29)	9.8%	12.8%	14.6%	19.2%
Dewhurst ($DWHA)	13.7%	14.7%	13.4%	13.6%
Lpa Group ($LPA)	5.7%	4.4%	9.3%	11.6%
Median (15 companies)	4.5%	5.8%	8.3%	8.9%	12.8%
Gooch & Housego ($GHH)	13.4%	19.8%	17.3%	17.3%	14.1%

Top companies by CAPEX/Revenue, %


Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
Lpa Group ($LPA)	14.8%	1.8%	6.0%	7.3%
Maruwa Co Ltd ($MAW)	7.6%	6.5%	4.4%	6.1%	6.9%
Wintek Corp ($WTKA)	2.4%	0.6%	1.6%	4.2%
Solid State ($SSP)	1.3%	1.4%	2.0%	3.7%	0.9%
Morgan Advanced Materials ($BA29)	3.7%	7.0%	4.0%	3.4%
Median (16 companies)	1.3%	1.4%	1.7%	1.6%	1.1%
Gooch & Housego ($GHH)	2.7%	3.9%	11.3%	5.2%	4.7%

Top companies by ROIC, %


Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
Image Scan Hldgs ($IGE)	-45.6%		16.4%	39.8%
Morgan Advanced Materials ($BA29)	10.9%	18.4%	21.9%	31.6%
Prophotonix Ltd ($PPIR)				25.8%
Dewhurst ($DWHA)	24.5%	27.3%	24.6%	24.1%
Zytronic ($ZYT)	17.0%	22.7%	18.1%	20.9%
Median (16 companies)	4.7%	5.7%	9.4%	15.3%	17.0%
Gooch & Housego ($GHH)	6.8%	13.6%	10.8%	12.1%	8.3%

Top companies by Net Debt / EBITDA


Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
Apc Technology Group ($APC)	0.5x			5.2x
Walsin Lihwa Corp ($WALS)	3.9x	4.6x	2.7x	1.9x
Stadium Group ($SDM)	1.2x	0.3x	0.7x	1.4x
Lpa Group ($LPA)	1.5x	3.8x	1.3x	1.1x
Morgan Advanced Materials ($BA29)	2.3x	1.8x	1.7x	0.9x
Median (13 companies)	1.2x	0.5x	0.4x	-0.5x	-0.9x
Gooch & Housego ($GHH)	-0.9x	-1.1x	-0.8x	-0.8x	0.6x

Gooch & Housego stock price chart

Gooch & Housego financials

mln.	FY2013	FY2014	FY2015

Revenue	63.252	70.056	78.702
EBITDA	13.356	9.364	15.591
Net income	6.192	5.399	7.459
CAPEX	2.032	1.909	3.053
Debt	8.839	8.408	5.228
Cash	14.558	17.094	22.556

About Gooch & Housego

Gooch & Housego plc researches, designs, engineers, and manufactures photonic systems, components, and instrumentation for applications in the aerospace and defense, industrial, life sciences, and scientific research sectors. The company operates through four segments: Aerospace & Defence, Life Sciences, Industrial, and Scientific Research. It offers acoustic products, including beam deflectors, fiber-coupled devices, frequency shifters, model lockers, modulators, multi-channel modulators, pulse pickers and cavity dumpers, Q-switches, RF drivers, tunable filters, and accessories; crystal optics, such as LN wafers, nonlinear optics, lithium niobate, and wave plates; and fiber optics, such as fused fiber optic components, fiber coupled AOM, fiber optics assemblies, booster erbrium-doped fiber amplifiers, single mode pump lasers, multi mode pump lasers, high speed 20GHz detectors, DFB laser modules, DFB and DBR lasers, laser packaging, and benchtop laser controllers. The company also provides electro-optic products comprising BBO lightgate, CdTe IRX, KD*P, and aperture pockels cells; EO Q-switch drivers; lithium niobate Q-switches; and pockels cell alignment for single pass systems. In addition, it offers life science and instrumentation products, including CR-100 and CR-200 tristimulus colorimeters/photometers, detectors, LMK imaging photometer systems, integrating spheres, precision constant current sources, radiometers/photometers, diffuse and specular reflectance standards, spectral imaging and synthesis products, spectral irradiance and illuminance standards, spectral radiance and luminance standards, and spectroradiometers. Further, the company provides precision optics, optical components, and optical assemblies. It operates in the United States, continental Europe, the United Kingdom, and the Asia Pacific. Gooch & Housego plc was founded in 1948 and is headquartered in Ilminster, the United Kingdom.