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GYG “encouraged by the ongoing trading momentum” says Zeus Capital

GYG plc (LON:GYG) has delivered robust 2019A results following three earnings upgrades over the past year, regaining growth momentum and delivering improved margins. Despite some short-term disruption from COVID-19, the order book provides greater visibility than ever before, with the Group operating at c.90% capacity with no cancellations noted to date, underpinning forecasts for FY20. We believe the Group is now a better business than at IPO, capable of driving continued EPS expansion going forwards as it fully utilises its unique and global market leading position.

  • FY19 Results: Group revenue of €63.8m was +42% YOY and 5.5% ahead of our forecast (ZC: €60.5m), driven by +50.4% growth in Coatings at €53.7m (ZC €50.0m) with Supply +6.3% at €10.1m (ZC €10.5m). Gross profit of €15.0m was also a slight beat on our forecast of €14.8m thanks to revenue outperformance in Coatings and a better than forecast margin performance in Supply.Adjusted EBITDA (pre amortisation, impairment, share based payments and exceptional items) of €4.5m was 4.8% ahead of estimates, driven by the significant turnaround in the Coatings division from a loss of €1.5m to a profit of €3.6m at the adjusted EBITDA level, with supply also advancing €0.3m to €0.9m. Lower than forecast tax and the FX benefit of sterling weakness gives adjusted EPS of 2.6p, -1.4% versus forecasts (ZC: 2.7p). Underlying net debt of €4.5m (excluding operating lease liabilities) is down from €5.8m in the prior year driven by the EBITDA outperformance and improvements in working capital.
  • Robust outlook: Whist COVID19 has created unprecedented uncertainty from which no company is immune, we are encouraged by the ongoing trading momentum seen in the Group, with a robust forward order book of €42.7m at 30 June 2020, including €16.4m of work to be completed in the current year (versus €38.6m and €15.3m respectively for the corresponding period last year).Demand for Superyacht refits is underpinned by its requirement for certain class, maritime law and insurance purposes as well as to maintain the quality of these high value assets, whilst we believe the spending power of the Group’s client base of c.2,500 ultra HNW individuals should remain resilient throughout any form of economic downturn.
  • Forecasts: Revenue forecasts nudge higher to reflect the FY19A beat. EBITDA forecasts are unchanged as we take a cautious approach due to ongoing uncertainty relating to COVID-19 but see potential for further revisions following the H1 trading update expected in early August.
  • Valuation: GYG trades on an FY20E PE of 16.9x falling to 11.4x in FY21E. Forecasts are underpinned by a record order book and resilient trading over recent months. Our intrinsic valuation modelling implies upside of c.90% with solid cash generation supportive of the Group’s desire to return to the dividend list when possible.

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