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GYG plc A transformative year – Zeus Comments

GYG plc (LON:GYG) has delivered a robust set of 2017 results, which are marginally ahead of our forecasts reset in November. Strong growth was delivered at all levels, and was primarily organic growth, with 14.7% revenue growth leading to 7.6% growth in adjusted EBITDA as it continues to invest in growth. We are maintaining our forecasts on the back of these results, and are comfortable with our assumptions given the strength of its order book, the growth dynamics of the market and its market leading position within this. We note the shares have been de-rated of late, and believe the FCF yield (>10% from 2018E), post-tax ROCE approaching 30%, dividend yield in excess of 6% and organic revenue growth (>10%) remains highly attractive.

2017 results – Revenues were +14.7% YOY (mainly organic growth), with adjusted EBITDA (pre-exceptional items and share based payments which mainly relate to transaction and IPO costs) +7.6% YOY at €7.2m, which is marginally ahead of the €7.1m we indicated in our recently updated forecasts in November. Adjusted EBIT was +7.8% YOY, with adjusted PBT coming in at €5.5m vs. €5.1m last year. Net debt at €6.7m was below our forecast and is 0.7x EBITDA. The board has proposed a total dividend in the form of a final dividend of 3.2 pence per ordinary share for the year ended 31 December 2017, reflecting the 6 months from IPO to the financial year end.

Key performance drivers – The Coatings division (Refit and New Build) experienced a strong year achieving 16.7% growth in revenue, which was particularly encouraging following the impact of the hurricanes in the US during Q3. There was strong momentum in the New Build business stemming from new major projects in Holland, Germany and the US, while GYG continued to expand its market share in refit. The Supply business delivered 4% growth in revenues, as it benefited from increased volumes through trade accounts and the expansion of yacht provisioning. The order book is at €20.4m (€14.3m planned for 2018), while the total pipeline has advanced from €267m to €376m, which bodes well for future growth.

Forecast assumptions – We are maintaining our forecast assumptions on the back of these results. We are encouraged by the growth in order book. GYG is well positioned for growth given in position on a number of fronts (refit new, supply etc).

Valuation – GYG plc trades on a 2018E P/E of 9.5x (falling to 7.7x in 2019E) and an EV/EBITDA of 5.9x (falling to 4.8x in 2018E), which we believe is compelling in the context of a >6% yield from 2018E. Our valuation is also supported by our DCF and intrinsic value analysis, which implies a valuation of €124.5m (£107.1m) if the strategy is executed successfully.

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