GYG Q&A: Results exceed Zeus Capital’s forecasts (LON:GYG)


GYG plc (LON:GYG) is the topic of conversation when Zeus Capital’s Head of Research Mike Allen caught up with DirectorsTalk for an exclusive interview.

Q1: GYG published final results for the year ended 31st December 2019, what were the highlights from those results?

A1: The results marked a significant turnaround from 2018 and was also ahead of our expectations as well.

Revenues came in at €63.8 million which is up 42% year-on-year and that was 5.5% ahead of our forecasts expectations of €60.5 million. At the adjusted EBITDA level, they also came in at €4.5 million and that compared to a los of €0.9 million last year so a really significant turnaround there. We had a forecast in the market of €4.3 million so again, it was ahead of our expectations.

Earnings were broadly in line and net debt excluding lease liabilities came in €4.5 million and that compared to €5.8 million last year and we had a forecast of €5.3 so on cash generation, particularly working capital, the company performed very well.

Q2: Did you note any key themes in the results?

A2: Obviously, we saw a 50% growth in the coatings division this year which we was very strong and clearly, we saw 6 major contract wins during the course of the year, new builds, so very strong momentum there. It’s about €11 million of new build revenue generated against €4 million last year so very clear signs of boost in market share.

Strong collaborations with Akzo Nobel etc. and also there’s a good strategic move into Northern Europe as well. Refit market also bounced back really strongly, that was up 46% year-on-year so increased capacity is helping. Supply part of the business continues to be robust as well, revenues there were up about 6%.

What I’d also say was from an efficiency perspective, from an infrastructure perspective, the company has done a lot of work there as well. I think ultimately this will mean that the quality of earnings for this business will improve going forward and I think we’re at the beginning of seeing that at the moment.

Q3: You pointed out that results were ahead of expectations, has that meant a change to your forecast in any way?

A3: So, we’ve tweaked up our revenue forecasts by a couple of percent this morning so our revenue in 2020 has gone from €63 million to €64 million however we are expecting a more detailed trading update in terms of how the first half of 2020 has gone in a few weeks’ time. So, I think we’ll get more colour about the H1/H2 split in 2020 and that will allow us to have a more detailed look at the forecast.

Clearly, when you look at the order book, there’s never been more visibility as we see now in terms of current year and future years as well. So, I think the revenue adjustment is very conservative but we’ll take a closer look at the forecast in a couple of weeks’ time when we get more colour on the H1 trends and the impact of COVID etc.

Q4: Finally, what’s your view of GYG in terms of an investment case?

A4: From our perspective, we think the company is a better business actually than when it floated, clearly it had a difficult 2018 but a lot of work has gone on behind the scenes to improve the efficiency. I think the new build and refit markets have come back very strongly, balance sheet now is in good shape as well and in the next year or so we could start see a net cash position return. I think the company and would like to return to the dividend list as soon as they can as well.

Essentially, this is a global niche player that I think has become a stronger proposition, I think the end market does tend to be robust in terms of number of billionaires and demand for the product, it’s a very necessary product as well from the maintenance and insurance perspective. I think the business characteristics in terms of being asset-light, high return on capital, good visibility, I think there’s a number of high quality investment themes here that will come out over the coming months and years.

We think the company is a very strong position to get back to at least the peak earnings we saw in 2017 and move on from there.

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