GYG “order book is at record levels providing more forward visibility than ever before” says Zeus Capital

Following a number of recent contracts wins GYG plc (LON:GYG) order book now stands at record levels, which we believe should give investors confidence in current forecasts. We leave our published numbers unchanged at this juncture but believe our assumptions to be well underpinned by increasing trading momentum backed by the record order book, coupled with efficiencies and cost savings evident in the H1 margin trends.

  • H1 trading update: H1 results were well flagged at the trading update on 21st August. Adjusted EBITDA increased by 6.7% to €1.6m vs. €1.5m last year reflecting a 21.4% growth in margin to 5.6% (H119: 4.5%) as the efficiency/cost reduction measures flow through, despite a 12% decline in YOY revenue which was impacted by the disruption of COVID-19 during the period. Indeed, further margin improvements are expected during H2. H1 net debt did increase to €10.9m from €8.1m with cash of €3.0m vs. €5.5m last year.
  • Key highlights: GYG will be active on an unprecedented eight New Build projects across Northern Europe in FY21, five of which are c70m-100m and three are 100m+. This will drive revenue from H2 2020 and into 2021. The strong momentum seen during 2019A in Refit continued into H1 2020. Uncertainty around COVID-19 actually brought forward work into the summer months as previously flagged. During H1 2020, the Supply division began the roll-out of its new branding across all platforms following the realignment of the growth strategy.
  • Record order book: The order book is at record levels providing more forward visibility than ever before. The total order book has increased 26% since 30 June 2020, with a 24% in the current year highlighting the current momentum across the Coatings division.
  • Forecasts: Given the strength of order book, the Group remains confident it is on track to meet market expectations. Our forecasts are unchanged since pre-COVID-19, which we believe is testament to GYG’s growing market position and the resilience of its consumer base. The Group do not believe Brexit will have a material impact on future prospects. We maintain our published forecasts and introduce FY22E numbers today, although sound a degree of caution around near-term contract phasing should a second wave of international lockdowns occur. 
  • Investment view: We remain very comfortable with the investment case and our forecasts at this juncture. Based on our last note, our intrinsic value modelling implies a share price of 139p or c.90% upside with solid cash generative supportive of GYG returning to the dividend list when possible.
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