GYG “very comfortable with the investment case” says Zeus Capital

GYG plc (LON:GYG) H1 trading update shows 12% decline in revenues for H1 2020 YOY due to COVID, with adjusted EBITDA ahead by €0.1m to €1.6m YOY driven by a 22% increase in margins. We are maintaining our forecasts for now, but believe there is some upside potential as we progress through the year and order book visibility continues to improve from here.

  • H1 trading update: GYG has issued a H1 trading update following on from FY results announced on 22 July. As flagged H1 revenues will be down YOY and confirmed at -12% to c€29.1m due to the disruptions that occurred during lockdown. Most of the associated revenue originally forecast for H1 will occur during H2 with no contracts cancelled, with the Group trading in-linr with pre covid expectations. Despite lower revenues in H1, adjusted EBITDA is expected to be €1.6m vs. €1.5m last year, which equates to a 22% increase in margin driven by the focus on improving earnings quality covered in our last note. New banking facilities have also been agreed with its lenders.
  • Order book visibility: This has also continued to improve as reported in July, with the order book as at 30 June standing at €42.7m, with €16.4m in the current year, €20.7m in the following year and €5.6m in current year +2. An update on this is expected to be given when it publishes H1 results on 24 September. As previously announced, a major New Build contract in H1 for a 80+ metre yacht will start in Q4 2020, with further advanced negotiations ongoing for further New Build contracts in 2021 and 2022. Four of the six New Build contracts signed in 2019 have either started or are due to start in Q3, which will increase New Build revenues through H2. Refit revenues have also remained strong during the summer months (normally a seasonally quiet period) with two new contracts with a combined value of €6m already underway. A further contract has already been signed with MB92 Group for a 140 metre yacht that will also commence during the latter part of Q3.
  • Forecasts: We are maintaining our forecasts at this juncture, but believe they are well underpinned. We will assess our forecasts in detail at the H1 stage when an update on the order book is available. We are comfortable with the implied H2 weighting of €4.1m of EBITDA this year vs. €3.0m last year given the increased levels of activity across the business as well as the margin initiatives now also clearly coming through.
  • 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 c.90% upside with solid cash generation that sees the Group returning to net cash in FY21, supporting GYG returning to the dividend list when possible.
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