GYG plc share price, company news, analysis and interviews

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 plc, they’ve released their first half results, can you talk us through the key points?

A1: So, the first half results were pretty well flagged on the headline measures, that they put out a detailed H1 update in late August. We did see revenues down 12% year on year but that was really due to the disruption of COVID during March and April but we did see a steady bounced back there. I think impressively the EBITDA was slightly ahead of last year, despite the March decline and that was testament to the 21% growth in EBITDA margin and that was driven by cost and efficiency measures that have been put through into the business over the last 12 months. So, the margin growth there was impressive.

I think the other thing I’ve kind of points out is on the order book as well so the order book is at record levels, the company now has eight big new build projects to work on from next year. It’s never been in this strong position and we can see in the current order book numbers as well that we are likely to see a very strong second half versus last year which is good news but also with that margin growth being sustained during that period as well.

Q2: What key themes did you note within the results?

A2: Obviously, a big key theme is the order book visibility which we’ve talked about before, strategically they seem to be in a very strong position in terms of new build, in terms of winning work there and executing that, particularly in Northern Europe. The refit business seems to be strong as well and, again, pretty strong during the summer months where it’s seasonally quiet, so that’s good news. The supply businesses also supporting the growth too.

So, I think, we are seeing growth on all fronts ready and this business has definitely been run, a lot better from an efficiency and cost point of view as well so that’s definitely helping margins.

Q3: Now, just in terms of your forecast, what assumptions have you made?

A3: So, in terms of forecast, we’ve left out underlying assumptions unchanged for 2020 and 2021, we do acknowledge there’s a second half weighting to hit our 20 numbers but we are comfortable with that given the growth from the current order book and the momentum we’ve seen their margins to date. 21 numbers have also left unchanged as well.

We’ve put through all 2022 forecasts for the first time where we’re assuming about 5% revenue growth and EBITDA margins, we think ultimately could get towards the 15% mark but we’re not assuming that in the forecast period.

Q4: Finally, what are your thoughts on the current valuation of GYG?

A4: We think, barring a kind of a global COVID kind of locked down that we’ve seen all ready, that could impact timing of projects. I think it’s important to know that the business hasn’t lost any work even in disruption but we think that the business, if we looking at it on PE multiples to 2021, where activity levels look to be very high, the company is trading on a PE of under 11 times at the moment and EV/EBITDA below five times.

It’s an asset like business, it is cash generative, the board has said that they wish to resume to the dividend list at the earliest  the opportunity. We haven’t factored anything inf or that yet  but there’s clearly an intention there. During July, we did some extensive valuation modelling in terms of a longer term intrinsic value and we’re still very comfortable with the average measure of about 1.39p.

So, looking at this over the next year or two, we think there’s plenty of earnings upside, if things continue and they execute that order book but also valuation upside as well as well as those asset-light earnings become apparent and we see return on invested capital expand accordingly.

So,  we think this business is in a good spot really over the coming year.

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 31^st 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.

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, or Global Yachting Group, issued a trading update on Tuesday, what key themes did you note in that statement?

A1: They issued a very positive trading update, they indicated that trading in the core refit business had continued to improve during the first 4 months of the year and we also saw further progress made in the new build segment as well. So, that led to more positive than expected trading patterns and we understand that the order book in both refit and new build continue to build well too.

Clearly, this is encouraging on the back of what was a difficult
year in 2018 but demand in refit now looks to be normalising and I think the
group has probably capitalised on this quite well too.

They do have some additional operation capacity that they’ve built in so hopefully they are well positioned to respond to any further market improvement.

Q2: Has this changed your forecasts in any way?

A2: Yes, we upgraded our forecast. So, 2019, we upgraded our revenue forecast by about 2% but that drove a 10% increase in EBITDA and 22% in earnings which is good news and we flowed through that upgrading to 2020 and 2021 as well.

Q3: What’s your view on Gyg PLC in terms of valuation or as an investment?

A3: Clearly, we are at the early stages of what we’d hope to be a geared recovery but I think it should be fairly encouraging that we’d like to think if you look at the 2017 outturn which we believe we could get back to at some point, the shares are on less than 10 times earnings. At the moment they are on a higher rating, just reflecting the recovery that we’ve got at the moment and hopefully, given by the momentum of the business, we should see further upward adjustments going forward.

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: Global Yachting Group (GYG) released its year-end results yesterday, what kind of flavour did you gain from the report?

A1: The results that they delivered, full year to December, very respectable growth during 2017 in what proved to be a very productive year for the group as it successfully made its transition onto the AIM market.

Revenues were up 14.7% year-on-year, EBITDA went from €6.7 million to €7.2 million, an 8% increase, and we saw a similar increase in adjusted earnings per share as well. Net debt fell from €10.4 to €6.7 million albeit largely the drop there was due to the funds from the IPO.

Overall, very respectable mainly organic growth that was delivered in this year in what proved to be a busy year for them.

Q2: What can you tell us about the market dynamics?

A2: The market dynamics are very positive indeed really, the super yacht new build and refit painting business continues to grow at around 6%, the refit market within that is very strong as well. I think the dynamics behind that, we expect the number of billionaires globally to grow by a CAGR of about 9% to 2020 and that correlates very strongly with the number of super yachts in existence. The size of the super yachts continues to grow as we expected during the IPO as well and Gyg typically get paid on a square foot basis.

So, I think the dynamics in terms of growth of the end customer, the number of yachts continue to be positive and we’d expect that to filter through into new build and refit markets.

Q3: Has this affected your forecasts in any way?

A3: No, we’ve maintained our forecasts for 2018 for now, they’ve seen some growth in the order book and we do believe the business is well positioned in the industry as well as a leading player and global player in this niche market, but we’ve kept the forecasts unchanged for now.

Q4: In terms of company valuation, what are the key things that we should be looking at?

A4: GYG shares have de-rated slightly of late, I think if you look at the valuation on December 2018 basis, it’s trading on a PE of just below 10 times, EV/EBITDA of 6 times and there’s a dividend yield on offer at about 6%. The free cash flow dynamics of the business are very positive, and we estimate a yield of around 10% there and it’s an asset light business as well and the returns on capital are approaching 30% so to my mind, it’s a very good asset light niche business.