Gooch & Housego – Photonics group’s shares are cheap at just 500p, my Target Price is 600p.

03.06.2025

After dropping to 477p at one stage yesterday before closing at 500p, the shares of Gooch & Housego (LON:GHH), the specialist manufacturer of optical components and systems, today offer a cheap buying opportunity.

This morning’s Interim Results announcement, for the six months to end-March, showed revenues up 11.4% at £70.9m (£63.6m), with a 91% leap in adjusted pre-tax profits to £5.1m (£2.6m), with interim earnings up 80.7% to 15.0p (8.3p) and paying an unchanged 4.9p interim dividend per share.

CEO Charlie Peppiatt stated that:

"The strong performance achieved in the first half of the year, against a challenging macroeconomic background, is a testament to the positive progress the Group is making with the deployment of our new strategy and the resilience and depth of experience across our leadership team in navigating complex market dynamics.

Our expectations for FY2025 are unchanged; trading has continued well post the period end and we have >95% cover for full year expected revenue, though there are increased execution risks due to increased global uncertainty.

With our growing order book, strengthening market positions and differentiated photonics expertise aligned to structural growth drivers from megatrends, we remain confident in our ability to deliver further progress on our journey to mid-teens returns by 2028 and generate value for all our stakeholders."

The Business

Gooch & Housego is a photonics technology business headquartered in Ilminster, Somerset, with operations in the USA and Europe.

It is a world leader in its field, which is the researching, designing, engineering, and manufacturing of advanced photonic systems, components, and instrumentation for applications in the Aerospace & Defence, Industrial, Life Sciences, and Scientific Research sectors.

Industrial and Telecom – represents just short of 50% of group sales.

The group designs and manufactures submodules and module assemblies according to customer specifications.

It is recognised as a world-class, vertically integrated, custom-designed photonics supplier across all of its industrial applications.

Its leadership in the design and manufacture of custom optical solutions has established it as a preferred source for OEMs in industry, subsea communications, and energy.

Aerospace and Defence – makes up a third of group sales.

Mission-critical technology demands uncompromising precision, absolute reliability, and close partnerships with suppliers.

For more than seven decades, GHH has delivered proven optical solutions for aerospace, avionics, and defence platforms, including ruggedised commercial photonic components, build-to-print products, and full-scale development of customised solutions.

The group is recognised for the breadth of its acousto-optic, electro-optic, crystal-optic, fibre optic, and precision optic products.

Its engineers work closely with program managers at prime aerospace and defence suppliers.

Life Sciences – a fifth of group sales.

As a vertically integrated supplier of optics, modules, and subassemblies, the group is uniquely positioned to support scalable manufacturing, documented quality control, and security of supply.

It supports medical innovation through its contract design and manufacturing capabilities by partnering with leading pharmaceutical and medical device innovators to develop lifesaving diagnostic, analytical, and drug-delivery devices.

Two weeks ago, the group announced its $17.5m acquisition of the Tampa, Florida-based Global Photonics, which supplies optical systems for military land applications, including periscopes and fire-control systems, as well as instrumentation for air platforms and other advanced precision optics.

Its expertise in cleanroom lithography, photolithographic reticle fabrication, ion beam etching and advanced thin film coatings will complement GHH's existing manufacturing capabilities and enhance the group's offering into the North American market.

That transaction, which represents another 'speed to value' acquisition by the group, will see it supporting the Global Photonics team with wider capabilities, particularly in the areas of laser protection filtering and complex optical system design, allowing them to secure further business through their existing strong reputation and well-established relationships with U.S. defence prime contractors. 

The Equity

There are some 25.8m shares in issue.

The larger holders include Odyssean Capital (12.6%), Octopus Investments (11.9%), Fidelity (5.9%), Schroder Investment Management (5.4%), Canaccord (4.9%), JM Finn (4.2%), and JO Hambro Capital Management (3.70%).

Broker’s Views

Analyst David Buxton, at Cavendish Capital Markets, rates the group’s shares as a Buy with a Target Price of 680p.

For the current year to the end of September 2025, he sees revenues of £154.0m (£136.0m), while adjusted pre-tax profits could rise to £13.4m (£8.1m), lifting earnings to 40.7p (25.1p) with a maintained dividend of 13.2p per share.

For the coming year, he goes for £167.3m sales, £16.6m profits, 47.1p earnings per share with a similar 13.2p dividend.

My View

This little £130m-capitalised group has massive potential, while its shares now at just 500p do not, as yet, reflect its prospects.

That will change in due course, I remain confident of my Target Price of 600p being achieved within the next year.

(Profile 09.12.24 @ 490p set a Target Price of 600p)