Gooch & Housego reports 47.9% Net Income decline in 2019 while 3.4% Revenue growth

03 Dec 2019 • About Gooch & Housego ($GHH) • By InTwits

Gooch & Housego reported FY2019 financial results today. Here are the key drivers of the company's long term financial model:

Gooch & Housego has medium CAPEX intensity: 5 year average CAPEX/Revenue was 5.9%. At the same time it's a lot of higher than industry average of 1.9%.
CAPEX is quite volatile: £6m in FY2019, £6m in FY2018, £6m in FY2017, £10m in FY2016, £3m in FY2015
The company has potentially unprofitable business model: ROIC is 5.7%
It operates with medium-size leverage: Net Debt/EBITDA is 0.8x while industry average is -0.4x

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

Revenue and profitability

Gooch & Housego's Revenue increased on 3.4%. Revenue growth was financed by EBITDA margin decline. EBITDA Margin decreased slightly on 0.71 pp from 14.1% to 13.4% in FY2019. EBITDA Margin declined at -1.6 pp per annum in the last 5 years.

Gross Margin decreased on 5.3 pp from 40.1% to 34.8% in FY2019. SG&A as a % of Revenue decreased slightly on 2.0 pp from 25.3% to 23.3% in FY2019. During the last 5 years SG&A as a % of Revenue topped in FY2018 at 25.3%. Stock Based Compensation (SBC) as a % of Revenue showed almost no change in FY2019.

Net Income margin decreased on 2.9 pp from 5.8% to 2.9% in FY2019. Net Income margin stuck to a declining trend at -1.6 pp per annum in FY2015-FY2019. The efficient tax rate was 36.8% in FY2019.

Investments (CAPEX, working capital and M&A)

Gooch & Housego's CAPEX/Revenue was 4.5% in FY2019. CAPEX/Revenue decreased on 6.8 pp from 11.3% in FY2016 to 4.5% in FY2019. It's average CAPEX/Revenue for the last three years was 4.8%. During FY2015-FY2019 CAPEX as a % of Revenue topped in FY2016 at 11.3% and was declining since that time.

Inventories as a % of Revenue increased on 5.1 pp from 20.7% to 25.8% in FY2019. Accounts payable as a % of Revenue decreased on 6.9 pp from 33.8% to 26.9% in FY2019.

Return on investment

The company operates at low ROIC (5.7%) and ROE (3.4%). ROIC decreased on 2.6 pp from 8.3% to 5.7% in FY2019. ROE decreased on 3.5 pp from 6.9% to 3.4% in FY2019. ROIC stuck to a declining trend at -1.8 pp per annum in the last 5 years. ROE followed a declining trend at -1.5 pp per annum in the last 5 years.

Leverage (Debt)

Company's Net Debt / EBITDA is 0.8x and Debt / EBITDA is 1.8x. Net Debt / EBITDA surged on 0.2x from 0.6x to 0.8x in FY2019. Debt increased on 5.9% while cash decreased on 9.9%. Net Debt/EBITDA followed a growing trend at 0.5x per annum in FY2015-FY2019.

Gooch & Housego has good short term financial stability: Interest coverage ratio (ICR) is 3.4x. Gooch & Housego has no short term refinancing risk: cash is higher than short term debt (22,742.9%).

Average interest expence charged on company's debt was 7.8% in FY2019.

Valuation and dividends

The company's trades at EV/EBITDA 19.3x and P/E 85.1x.

The company paid 79.8% of Net Income as dividends in FY2019.

Management team

At the end of financial year the company had 0.41% shares owned by insiders. Insider ownership didn't change in 2019.

The company has 964 employees. The number of employees jumped on 11.3%. Average revenue per employee in FY2019 was £133,955 and it decreased on 7.1%.

Financial and operational results

FY ended 30 Sep 2019

Gooch & Housego ($GHH) key annual financial indicators

mln. £	2015	2016	2017	2018	2019	2019/2018
P&L
Revenue	78.7	86.1	112.0	124.9	129.1	3.4%
Gross Profit	31.0	32.3	46.1	50.1	44.9	-10.3%
SG&A	16.0	17.9	26.4	31.6	30.1	-4.7%
EBITDA	15.6	14.8	19.3	17.6	17.3	-1.8%
EBIT				10.8	8.4	-22.1%
Interest expence				0.7	2.5	254.4%
Tax				2.9	2.2	-24.3%
Net Income	7.5	7.0	8.9	7.2	3.8	-47.9%
Stock Based Compensation				0.7	0.2	-71.7%
Balance Sheet
Cash	22.6	23.2	26.4	19.4	17.5	-9.9%
Inventory				25.9	33.3	28.6%
Accounts Payable				25.3	22.7	-10.3%
Short Term Debt	0.0	0.0	0.0	0.1	0.1	2.7%
Long Term Debt	5.2	11.5	11.5	30.0	31.7	5.9%
Cash flow
Capex	3.1	9.7	5.8	5.8	5.8	-1.0%
Dividends				3.0	3.0	0.0%
Ratios
Revenue growth	12.3%	9.3%	30.2%	11.5%	3.4%
EBITDA growth	66.5%	-4.8%	30.3%	-8.9%	-1.8%

Gross Margin	39.4%	37.5%	41.1%	40.1%	34.8%	-5.3%
EBITDA Margin	19.8%	17.3%	17.3%	14.1%	13.4%	-0.7%
EBIT Margin				8.6%	6.5%	-2.1%
SG&A, % of revenue	20.3%	20.8%	23.6%	25.3%	23.3%	-2.0%
SBC, % of revenue				0.5%	0.1%	-0.4%
Net Income Margin	9.5%	8.2%	7.9%	5.8%	2.9%	-2.9%
CAPEX, % of revenue	3.9%	11.3%	5.2%	4.7%	4.5%	-0.2%

ROIC	13.6%	10.8%	12.1%	8.3%	5.7%	-2.6%
ROE	10.1%	8.4%	9.4%	6.9%	3.4%	-3.5%
Net Debt/EBITDA	-1.1x	-0.8x	-0.8x	0.6x	0.8x	0.2x
Interest expence / Average debt				3.4%	7.8%	4.4%
People
Insider ownership				0.4%	0.4%	0.0%
Employees				866	964	11.3%
Revenue/Employee, th. £				144	134	-7.1%

Peers in Electronic & Electrical Equipment

Below we provide Gooch & Housego benchmarking against other companies in Electronic & Electrical Equipment industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.

Top companies by Revenue growth, %


Top 5	FY2015	FY2016	FY2017	FY2018	FY2019
Lpa Group ($LPA)	-3.4%	31.7%	4.9%	24.5%
Maruwa Co Ltd ($MAW)	-2.0%	-6.8%	5.3%	19.7%
Solid State ($SSP)	13.9%	20.6%	-9.2%	15.6%
Dewhurst ($DWHA)	-1.4%	2.6%	12.2%	3.1%
Volex ($VLX)	5.8%	-13.2%	-13.0%	0.9%
Median (9 companies)	-1.3%	-1.2%	6.9%	0.9%	-31.7%
Gooch & Housego ($GHH)		9.3%	30.2%	11.5%	3.4%

Top companies by Gross margin, %


Top 5	FY2015	FY2016	FY2017	FY2018	FY2019
Elektron Technology ($EKT)	35.6%	37.2%	39.1%	49.7%
Image Scan Hldgs ($IGE)		42.3%	38.3%	47.5%	54.1%
Maruwa Co Ltd ($MAW)	30.0%	35.9%	36.9%	43.1%
Zytronic ($ZYT)	41.9%	42.8%	41.1%	37.0%
Solid State ($SSP)	30.5%	31.8%	30.1%	27.5%
Median (7 companies)	24.1%	30.5%	29.1%	37.0%	54.1%
Gooch & Housego ($GHH)	39.4%	37.5%	41.1%	40.1%	34.8%

Top companies by EBITDA margin, %


Top 5	FY2015	FY2016	FY2017	FY2018	FY2019
Maruwa Co Ltd ($MAW)	14.7%	19.6%	21.4%	28.7%
Zytronic ($ZYT)	27.8%	25.6%	28.8%	23.7%
Elektron Technology ($EKT)	7.2%	8.1%	5.8%	17.8%
Dewhurst ($DWHA)	14.7%	13.4%	13.6%	14.2%
Lpa Group ($LPA)	4.4%	9.3%	11.6%	9.9%
Median (8 companies)	5.8%	8.3%	8.9%	12.1%	-16.0%
Gooch & Housego ($GHH)	19.8%	17.3%	17.3%	14.1%	13.4%

Top companies by CAPEX/Revenue, %


Top 5	FY2015	FY2016	FY2017	FY2018	FY2019
Maruwa Co Ltd ($MAW)	6.5%	4.4%	6.1%	6.9%
Dewhurst ($DWHA)	1.9%	1.9%	1.8%	2.1%
Lpa Group ($LPA)	1.8%	6.0%	7.3%	1.8%
Elektron Technology ($EKT)	1.1%	1.8%	0.9%	1.3%
Zytronic ($ZYT)	4.7%	1.8%	2.1%	1.2%
Median (8 companies)	1.4%	1.7%	1.6%	1.3%	0.4%
Gooch & Housego ($GHH)	3.9%	11.3%	5.2%	4.7%	4.5%

Top companies by ROIC, %


Top 5	FY2015	FY2016	FY2017	FY2018	FY2019
Maruwa Co Ltd ($MAW)	5.7%	9.0%	11.4%	19.2%
Dewhurst ($DWHA)	27.3%	24.6%	24.1%	18.9%
Elektron Technology ($EKT)	9.9%	7.0%	-9.0%	18.8%
Solid State ($SSP)	20.0%	23.0%	14.6%	15.2%
Zytronic ($ZYT)	22.7%	18.1%	20.9%	15.1%
Median (11 companies)	5.7%	9.4%	15.3%	15.1%	-27.7%
Gooch & Housego ($GHH)	13.6%	10.8%	12.1%	8.3%	5.7%

Top companies by Net Debt / EBITDA


Top 5	FY2015	FY2016	FY2017	FY2018	FY2019
Lpa Group ($LPA)	3.8x	1.3x	1.1x	0.7x
Solid State ($SSP)	0.7x	0.7x	-0.3x	-0.2x
Volex ($VLX)	-0.7x	0.3x		-0.8x
Elektron Technology ($EKT)	0.8x	0.5x	-0.5x	-1.0x
Dewhurst ($DWHA)	-2.2x	-2.6x	-2.5x	-1.2x
Median (7 companies)	0.5x	0.4x	-0.5x	-1.0x
Gooch & Housego ($GHH)	-1.1x	-0.8x	-0.8x	0.6x	0.8x

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.