Gooch & Housego LON:GHH the Somerset-based designer and manufacturer of optical components and assemblies for the aerospace and defence, medical, and industrial industries published a trading update for the end of the year today (3rd October). The company will publish its final results to end-September on 5th December.
The AIM-listed company has been operating for over 70 years and was originally a partnership between Dr.Cyril Gooch and Eric Housego, initially manufacturing crystal-based scientific optical components, which it still does today, as well as other precision optical components.
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The company expanded from its headquarters in Ilminster, mainly through acquisition, and now has nine factories spread across the UK, US, and China. In the 1960s and 1970s, G&H played a key role in the development of new technologies such as laser systems and fibre optics. In the 1980s and 1990s, G&H continued to grow and develop new products, acquiring a number of other optical companies, including Barr & Stroud and Oriel Instruments. G&H listed on AIM in 1997.
Gooch & Housego operating in futureproof industries
G&H focuses on three main business sectors: Aerospace & Defence; Industrial & Telecommunications; and Life Sciences. Its Defence practice includes Satellite Photonics (photonics being the physical science of light waves dealing with the science behind the generation, detection and manipulation of light and its dual nature known as the wave-particle duality), allowing orbiting satellites to transmit and receive communications – an application that requires a rugged, lightweight, low-power, high concentration space-compatible product. The Defence subsidiary also manufactures ruggedised optical systems for submarines, ships, armoured fighting vehicles, and aircraft, as well as components for portable night vison optics. The company also develops optics for airborne and spaceborne navigation and laser-directed energy weapons.
Its civilian applications include Lidar (laser imaging, detection, and ranging) systems used for determining ranges and distances and are used to make high-resolution maps, with applications in surveying, geodesy, geomatics, archaeology, geography, geology, geomorphology, seismology, forestry, atmospheric physics. The company also manufactures components used in laser-based semiconductor manufacturing, a critical future industry.
Aggressive acquisitions
In its Life Science division, G&H manufactures medical optics, mainly used in medical microscopy and optical coherence tomography, as well as components for medical lasers used by beauticians, dentists, opticians and surgeons to conduct prostate surgery; scar correction; treatment of cataracts; removal of freckles, moles, and tattoos; wrinkle reduction; and teeth whitening.
The company has been quite aggressive in the last year in terms of acquisitions, with the GBP8.9m July purchase of Artemis Optical Holdings, a Plymouth-based, thin-film coating manufacturer that designs advanced optical filters for tailored electro-optical systems and laser protection, as well as bespoke HUD (heads-up display) combiners. The rationale for the acquisition was the integration of Artemis’ thin-film coatings to G&H’s existing optical laser products.
The Artemis acquisition was preceded by the USD15.7m (GBP13m) acquisition of Rochester, New York-based GS Optics in June, which designs and manufactures precision polymer optics for use in the biomedical, machine vision and analytical instrument markets, as well as military and civilian night-vision and visible-range sighting applications. GS Optics was founded in 1916 and G&H aims to make GS Optics its centre for excellence in North America for life science technology. Rochester is a hub for optics and optical products manufacture in the US.
Trading ahead of expectations
Despite the outlay, G&H reported that its trading for the year was ahead of expectations. The new acquisitions were bedding in well with revenues up by more than expected and the company said: “[we] expect the strong revenue performance to translate into a full-year adjusted pre-tax profit above the current market expectations.”
At the end of last month, G&H’s order book was GBP124.9m – this was down 15% on its order book at the close of September 2022, and on par with the first six months of this financial year. The company attributed the y-o-y decline to industry destocking and warned that is process would in the short-term impact the revenues of its Industrial division.
However, the company expects improved revenues from Aerospace & Defence, and Life Sciences. Seventy-five percent of the order book is for delivery in 2024. Charlie Peppiatt, G&H’s chief executive said in a statement to the market this morning: “I am delighted with the positive progress the group has made in FY2023. Our operational performance has shown sustained improvement with on time delivery and lead times both improving significantly […] The integration of GS Optics and Artemis into the G&H Group is on track. Both businesses are already benefitting from the additional market access and investment that being part of G&H brings.”
Gooch & Housego net debt set to better market expectations
Strong cash generation allowed G&H to cut its debt by USD5.5m post-acquisitions, which Peppiatt said would see the company’s end of year net debt better than market expectations. In its last Interim Results to end-March, published in June, G&H reported revenues for 1H23 of GBP71.3m, up 31% year-on-year, with adjusted profit before tax of GBP4.5m, up 26% y-o-y.
Net debt, inclusive of IFRS16 was GBP19.2m, up 60% y-o-y although that should be down to around GBP14.7m unless the company took on more credit in the last six months. Earnings per share was 10.9p, up 58% compared to the corresponding period from the year before and G&H was offering an interim dividend per share of 4.8p.At the time Peppiatt said: “Full year expectations for the group are unchanged and the outcome of our strategy review confirms a clear route to mid-teen returns in the medium term.”
G&H opened trading today at 528p today was up to 543p by mid-morning. The Somerset-based company has offered a -2.2% year-to-date return with a -9% one-year return. Shares have ranged between 388p and 670p over a 52-week period. The company has a market capitalisation of GBP128.9m.
Market consensus puts GHH’s share price at 750p. If you believe the analysts, there is a fair bit of headroom for the company to grow into. The optical equipment manufacturer is in a number of key, strategic growth sectors, with its products a critical component in defence and space applications, as well as life science, semiconductor manufacture and mapping and navigation – all high-growth areas of ‘future’ industries. As such – no pun intended – G&H is ‘one to watch’.
