24.02.2025
At this morning’s AGM for Gooch & Housego (LON:GHH), the specialist manufacturer of photonic components and systems, the group will confirm that its order book has risen nearly 21% to £126.4m in the last four months or so and that is against a backdrop of market uncertainty and headwinds.
It is now evident that the group’s trading is on track to meet full-year expectations.
Management Comment
Along with this morning’s AGM Trading Update, the group’s CEO Charlie Peppiatt stated that:
"I am pleased to see the increase in the Group's order book since the beginning of the year.
It is clear the focus on delivering our strategic plan through improved customer experience, superior operational execution and value-creating technology is starting to bear fruit.
Whilst we are mindful of the uncertainty that new tariff regimes are introducing across several of our end-markets, we remain positive that the Group will deliver a significantly improved financial performance in FY2025.
The Group is strongly positioned in attractive growth markets and well placed to benefit as its industrial markets return to growth."
Its Final Results for the year to end-September 2024, showed a 0.7% increase in revenues to £136.0m (£135.0m) but with a 21.6% lower adjusted pre-tax profit of £8.1m (£10.3m), the adjusted basic earnings was 24.8% lower at 25.5p (33.9p), while its dividend was increased by 1.5% to 13.2p (13.0p) per share.
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 50% of group sales at £67.95m
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 25.3% of group sales at £34.46m
Mission-critical technology demands uncompromising precision, absolute reliability, and close partnerships with suppliers.
For more than seven decades, G&H 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 – 24.7% of group sales at £33.58m
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.
The Equity
There are some 25.8m shares in issue.
The larger holders include Odyssean Capital (12.60%), Invesco Advisers (7.89%), Schroder Investment Management (5.85%), Investec Wealth & Investment (5.38%), BlackRock Investment Management (4.85%), Royal London Asset Management (4.73%), JM Finn (4.15%), Franklin Templeton Fund Management (4.00%), FIL Investment Advisers (3.98%), and JO Hambro Capital Management (3.80%).
Brokers Views
There are currently four analysts following the group, all of whom rate its shares as a Buy.
The consensus average is for a 711p share Price Objective, the lowest is 441p, while the highest is 790p.
At Cavendish Capital Markets, its analyst David Buxton has a 680p share Price Objective.
His estimates for the 2025 year are for £151.3m sales, £13.3m adjusted pre-tax profits, 40.7p earnings and a 13.4p per share dividend.
For 2026 he sees £158.0m revenues, £15.8m profits, 47.5p earnings and a 13.6p dividend per share.
He considers that:
“The shares stand on a significant discount to their peers. Historically, the rating was significantly higher and therefore as internal recovery comes through, there is strong scope for a rerating.”
Analyst Robin Byde at Zeus Capital looks for the current year to end-September 2025 to show revenues of £148.5m, with adjusted pre-tax profits of £11.8m, 34.3p of earnings and a dividend of 13.5p per share.
For the 2026 year, he goes for £157.5m of sales, £14.1m profits, 41.0p earnings and a 13.7p dividend.
His estimate for 2027 is for £167.0m turnover, £15.8m in profits, generating 45.7p earnings and paying a 14.0p per share dividend.
Byde values the group at 650p a share.
My View
I do like the feel of this £114m capitalised ‘tech’ stock.
This group has an earnings-enhancing acquisition strategy and the ability within its improved financial flexibility to carry out that model going forward.
Its shares, which were up to 685p in February last year, were down two weeks ago to as low as 412p.
However, they are now trading at 441p, but still well below my early December 2024 Profile price – so I now suggest that they really are undervalued.
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