Gooch & Housego Share Discussion Threads

[rp19] 04/10/2024 19:19

Good to see more analysis on GHH. Held some time ago, watching since. I didn't think that Charlie Peppiatt particularly set the world alight when at Stadium Group previously.

[essentialinvestor] 04/10/2024 16:50

Thanks Simon.

[simon gordon] 04/10/2024 16:22

EI,

Thought is best to reply to you on this thread.

"Simon, i had a listen to the GHH Q&A and could get little clear sense of a turnaround - perhaps that's a fault in my interpretation.

What I do know is OIT are very sharp and may see a high probability of a bid."


I don’t believe OIT acquired GHH for a short-term bid trade. They recognize the growth potential and the opportunity to restore margins to the mid-teens.

According to OIT, GHH has historically been valued at 2.2 times EV/Sales. For 2024, it's valued at 0.9x, and for 2025, it's 0.83x.

There’s always a risk of a takeover.

From what I can observe, the newish CEO has recruited a talented team, which should start delivering results in 2025, with even stronger performance in 2026. Photonics is a growth industry, GHH is moving up the value chain, and the Defence division is positioned for robust growth, according to OIT. The company is currently trading at a P/E of 10x for 2025, and it’s a high-quality business.

Time will tell if Charlie Peppiatt can truly get things firing. Based on the world-class executive team he’s assembling, I think there’s a good chance of success.

Stuart Widdowson @ OIT - 15/8/24

“We met with the management team quite recently. They have a September year-end and are quite H2-weighted this year. There are some questions about whether they will roughly meet their targets this year. However, the management team's view for the next two or three years is radically different. They see substantial growth, not just as the destocking ends, but also due to new applications, particularly in some defense areas.”


The CNC rejuvenation has taken three years to gain momentum. GHH is at the two-year mark. Year three is the point where you can judge if the CEO is delivering on his strategy. The macro backdrop looks relatively benign for 25.

New CEO at CNC;
-6/21: 92.5p
-6/22: 75p
-6/23: 65p
-6/24: 102p

New CEO at GHH:
-9/22: 575p
-9/23: 508p
-9/24: 450p

I’m hoping CNC really gains momentum in 2025 through 2028 as the investment in growth starts to pay off.

GHH is also investing for growth, and it should deliver results in the coming years.

The more I examine Charlie Peppiatt’s strategy, the more I believe he possesses some of the qualities of an "Intelligent Fanatic." The most important factors are recruiting highly talented executives, incentivizing them effectively, and having a clear overarching message for employees. Charlie is successfully implementing all three.

[simon gordon] 04/10/2024 08:32

Hi Wiltowin,

I was wondering if you were still in.

GHH has faced two challenges: de-stocking and the lack of profitability in the Defence division.

According to GHH, they expect re-stocking to begin soon.

It seems they are reorganizing the Defence division with the acquisition of Artemis and the sale of EM4. Management says the problem with Defence is labour efficiency which they are working to improve.

Stuart Widdowson mentioned that the company anticipates significant growth in this division as global defence spending surges.

[wiltowin] 04/10/2024 07:37

Management are trying their best to get ghh back on track but it's a slog. Personally I took a loss a while back around 570p but still watching for any opportunity here to get back in.

[simon gordon] 29/9/2024 17:17

ChatGPTo on how long a corporate turnaround normally takes:

Phases and Timing Breakdown:

1. Initial Assessment and Stabilization (3 to 12 months):

-Quick steps to stabilize cash flow, cut costs, and avoid insolvency.

-Operational fixes and leadership changes often happen in this phase.

2. Restructuring and Recovery (1 to 2 years):

-More comprehensive restructuring of operations, finances, and strategy.

-Introduction of new products, repositioning in the market, or divestiture of non-core businesses.

3. and Scaling (2 to 3 years and beyond):

-After stabilization, the company focuses on sustainable, profitable growth.

-New market entry, acquisitions, or scaling back to profitability take place in this period.

Example Timelines:

-Quick Turnaround: For a company facing solvable operational inefficiencies and good market conditions, the turnaround might happen in 12 to 18 months.

-Moderate Turnaround: For more complex restructuring involving strategy and business model changes, it can take around 2 to 3 years.

-Long-Term Turnaround: For deeply distressed companies requiring cultural shifts, strategic overhauls, and dealing with external factors, it may take 3 to 5 years.

In conclusion, while initial stabilization might occur within the first year, a complete turnaround usually takes 2 to 3 years to achieve lasting recovery and growth.

------

Maybe some in the market were expecting GHH to be a quick turnaround but the de-stocking and issues at EM4 led to 24 downgrades. The company has said it would take several years to get up to mid-teens margins.

Cavendish forecasts

12/23
-T/O: 159.3m
-EPS: 39.1p
-Debt: 17.8m

2/24 - warning
-T/O: 148m
-EPS: 29.8p
-Debt: 17.8m

3/24 - EM4 sold
-T/O: 141m
-EPS: 30.1p
-Debt: 16.8m

8/24 - warning
-T/O: 138m
-EPS: 25.4p
-Debt 21.8m

Now that EM4 has been sold and normal stock demand is expected to return next quarter, the 25 forecast should have a decent chance of being met, unless there is a cyclical downturn or the company loses significant customers.

I would be surprised if they missed the revised 24 forecast.

26 is the year when they should really start performing. If they can deliver in 25, the market will regain confidence. At the moment, their credibility is in question.

[essentialinvestor] 29/9/2024 12:32

Simon, the share price appears to be indicating more disappointing news to come - obvs the market may have that wrong, find out with their next update.

[simon gordon] 29/9/2024 11:54

EI,

One outside factor to be aware of is Germanium.

China controls 60% of the market and has reduced supply in response to the US chip war. Price has risen. China doesn't mine it, it refines it. The West could up its output but it's not a big market.

Gallium, China controls 98% of the global market but I'm not sure if GHH use it, they do use Germanium.

In the GHH Interim Q&A with the CEO, he mentions that they have recruited a new General Manager for one plant (33.30), which is the one in Moorpark. That's Bill Keating who I posted about yesterday. He should have just about knocked that plant into shape by now.

In the Interim report, the CEO has highlighted the change underway in the benchmarking goals. It helps to build a picture of what is happening now and in the future.

[essentialinvestor] 28/9/2024 19:28

Hi Simon, thanks for the information, appreciated.

[simon gordon] 28/9/2024 16:13

EI,

Chairman and close associate are buyers, 5K this week.

Some CEO's just don't buy. GHH CEO took home 680K in 23, after-tax c.410K.

The 23 annual report is an interesting read and highly informative. They're a professional outfit and forward-leaning. Worth getting a hard-copy from IR.

I am judging them on the quality of the people they are bringing in, some of them are way above a £110m company. If the CEO can get the operations humming, then the sales team should bring in the business. They've got plenty of capacity.

The Q&A from the Interim 24 meeting with City analysts is worth a listen. The audio recording link is at the foot of this page:

[essentialinvestor] 28/9/2024 15:58

Simon, CEO does not appear to hold many shares?. Will have a look at the last annual report.

[simon gordon] 28/9/2024 15:05

Looks like they're investing in the American sales organisation:

-Global Sales Sr Director, Photonics Division
Fremont, CA

-Business Development / Sales Manager, Photonics Division
Fremont, CA

-Global Sales Sr Director, Life Sciences Division
Rochester, NY

-Director of Sales US - Life Sciences Division
Rochester, NY

-Technical Sales
Rochester, NY

-Sales Engineer
Rochester, NY

Rochester is probably getting a lot of investment with the appointment of Bryan Bothwell, who sits on the Executive Management Team board:




Sarabjit Singh on LinkedIn comes across as highly intelligent. He will make the GHH sales organisation into a hyper-professional and high-performance entity. He is top dollar!

------

The newish guy heading up G&H Moorpark looks top quality: joined 11/23:

Bill Keating

[simon gordon] 28/9/2024 12:18

An example of how GHH are going up the value chain:

Stratos Kehayas - Sept. 2024*:

Our Fiber-optics facility in Torquay, UK has completely transformed this year to enable the evolution of the site into a value-add OEM sub-system manufacturer. New high reliability modules containing G&H components under the hood are in full production - the site is buzzing! I am extremely grateful to our customers for the close collaboration and trust they have showed us in growing our businesses together. Nothing more satisfying than a strategic plan coming together with teamwork and hard work. A big shout out to everyone in our Torquay site for making this happen!

*Source: LinkedIn

The lower margin product that the factory previously produced has been moved to Thailand where they have GHH staff, this move has been years in the making, here's one employee who has moved from the UK to Thailand:



They now have more capacity for that product.

The factory in Torquay seems to be going well as they are recruiting strongly at the moment.

[essentialinvestor] 28/9/2024 10:19

They need to take an axe to the dividend.

Arguably maintaining the payout does not aid credibility given current net debt.

[simon gordon] 28/9/2024 07:24

Morning Bamboo,

If Rachel Reeves does a pro-market budget and doesn't hit AIM there could be a re-rating. At the moment the uncertainty is causing bleeding to numerous AIM shares. Maybe the Treasury will brief before the budget that AIM is safe, there are just over four weeks until the budget.

America is firing, China has done a Draghi with a whatever it takes.

There are a lot of bargains in UK small-cap land at the moment!

Good look at the state of the markets going-forward with Tom Lee at The Compound:

The Compound - 27/9/24

Tom Lee Strikes Back

On episode 159 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Tom Lee of Fundstrat to discuss: Tom's Q4 outlook, what usually happens after Fed cuts, geopolitical risks, Chinese stocks, a history of drawdowns, and much more!

[bamboo2] 27/9/2024 20:14

re 812 chart, looks like possible turn on 24/9 was confirmed as a high turn.

There's support at approx 400, then 388 before the LT historical 355


Little comfort I know, but this is not the only stock under pressure over past few days.

[simon gordon] 27/9/2024 16:07

Lowest close since 2012. Several AIM stocks are tumbling over the fear of the budget and what it means for AIM stocks.

In his first year, the new CEO hit the broker forecasts. His second year has been a bit of a nightmare, with destocking and EM4 losing contracts and getting sold on. All being well, he will hit 25 forecasts and get the company on an upgrade cycle. He's made some key hires in FY24 and looks to be setting up the company for growth.


free stock charts from uk.advfn.com

[wiltowin] 27/9/2024 15:33

Shocking performance

[simon gordon] 22/9/2024 16:03

26/8/24

-Odyssean Capital: 12.6%
-Octopus Investment: 11.53%
-Fidelity: 5.92%
-Schroders: 5.46%
-Canaccord Genuity: 4.9%
-Royal London: 4.73%
-JM Finn: 4.15%
-Perpetual: 3.88%

15/11/23

-Octopus Investment: 11.9%
-Odyssean Capital: 8.1%
-Canaccord Genuity: 7.6%
-Invesco: 7.6%
-Rathbone: 5.4%
-Royal London: 4.2%
-JM Finn: 4.1%
-Perpetual: 3.88%
-abrdn: 3.1%

[simon gordon] 21/9/2024 12:13

OXIG has an adjusted operating profit margin of 17.1% and aims to go 20%+.

The CEO at OXIG joined last October and was previously CEO at TTG and before that ran a division at Cobham. It appears that Chris Jewell followed him from Cobham to TTG as both were in the same division.

If GHH can hit £150m of turnover on a 15% margin, they could do around 62p. 20x = 1240p.

The question is which year can they hit this by? 2026, 2027 or 2028?

-175m turnover at 15% = c.75p

-200m turnover at 15% = c.87p

*Figures are rudimentary speculation.

[simon gordon] 21/9/2024 08:23

24 & 25 is forecast from Cavendish.




CEO's plan to get back to 15%+

-Volume: c.100 bps
-Productivity: c.200 bps
-Outsourcing: c.150 bps
-New Products: c.150 bps
-Portfolio: c.200 bps

[simon gordon] 20/9/2024 09:02

Bamboo,

Sorry forgot to answer your question. No, I haven't emailed the company about liquidity and the dividend. IMC is good for that sort of thing!