GYG (LON:GYG) has released a full year trading update confirming that it has traded comfortably ahead of our forecast expectations to 2019E. This proved to be a transformational year for the Group as it strengthened its order book and forward visibility against a backdrop of improving market conditions in both New Build and Refit. We are upgrading our 2019E EPS forecasts by c6% on the back of this update, and modestly upgrade our forecasts thereafter after a number of material upgrades during the course of last year. We remain confident in the recovery potential of GYG and envisage further earnings progress during the coming year.
- Trading update: GYG has confirmed 2019 has been a transformational year in which excellent progress was made in improving forward visibility. We believe GYG has continued to take market share against a backdrop of improving market conditions in both the New Build and Refit market. New facilities in Barcelona and Savannah continue to help reduce the impact of seasonality in the Refit market, while six New Build contracts have been signed in the year, which should give confidence in future forecasts.
- Improving visibility: The total order book was €44.4m and 31% ahead of the same point last year, with total orders scheduled for 2020 running at €32.9m and a 30% increase vs. the same point last year. Further details of the Order Book and future pipeline will be provided at the final results released on 6th April 2020. However, at this juncture, we feel confident that there are sufficient levels of activity to at least hit our revised forecast expectations. Clearly the other side of the equation is whether the Group can logistically deliver such projects, but following significant investment in senior management and systems, we believe GYG are in a better position to do this vs. previous years.
- Forecast changes: Following two material earnings upgrades to our 2019E forecasts during last year, we are once again upgrading our forecasts by c6% at the adjusted PBT level. This time last year we were forecasting adjusted EBITDA of €3.0m to 2019E, and now anticipate this to be €4.3m. We have also upgraded our 2020E and 2021E EPS forecasts by 4% and 3% respectively.
- Investment view: Based on our revised forecasts, GYG trades on an EV/EBITDA of 8.9x in 2019E falling to 6.0x in 2021E, and on a P/E basis 19.8x falling to 11.9x in 2021E. While the shares have performed well since H1 results on 26 September (50p), we believe there is more recovery potential to be unlocked. Given the asset light nature of the business model and high levels of cash generation, the rapid recovery of earnings should ensure the balance sheet rapidly improves towards a net cash position over the forecast period.