5th Apr 2022 18:13
(Alliance News) - Typically, slowed orders from electrical component maker Gooch & Housego PLC would worry the wider market, but Tuesday's update shows the firm is having a hard time processing orders.
"Orders are still coming in and the problem seems to be that the AIM-quoted firm is struggling to process them, owing to Covid-related absences at its sites in the UK and US. A warning that profits may fall GBP2.5 million short of expectations from boss Mark Webster is hitting the share price but the company still seems to be well plugged into growth markets over the long term," AJ Bell Investment Director Russ Mould said.
Shares in G&H closed 4.8% lower in London on Tuesday at 976.00 pence each, and is down a whopping 24% in 2022.
Gooch & Housego said its revenue in its half-year ending March 31 is likely to be 7.7% lower year-on-year from GBP58.5 million to GBP54.0 million.
G&H cited pandemic-related factors, such as staff absences and supply chain issues, constraining output as the reason for the decline. It says the first half deficit likely cannot be recovered in the second half.
G&H adjusted its guidance for full-year pretax profit to be GBP2.5 million lower than previous management expectations, assuming Covid-related absences from the first half subside in the second half.
In its results for financial 2021 back in November, it stated it was on track to deliver a GBP1.8 million profit benefit from its manufacturing program in financial 2022. G&H reported GBP4.7 million pretax profit in financial 2021, which was down 13% from the year before.
More positively, its order book stands at a record GBP119.9 million as of March 31, up 29% year-on-year from GBP92.8 million.
AJ Bell's Mould continued: "This progress reflects the company's reach from, and business mix at, nine sites worldwide, with just under a quarter of sales coming from life sciences, a third from aerospace and defence and just under a half from high-tech industries, including metrology, fibre-optics and semiconductor manufacturing.
"The global shortage of semiconductors is well understood and as a result capital investment by silicon chip makers is expected to surge by over 30% in 2022. With customers including America's Coherent and the UK's Renishaw PLC, Gooch & Housego is well placed to capitalise on this increase in spending."
This highlights, however, that the company is struggling to meet its demand, not create it.
"While understandably worrying for those members of staff involved, investors may be relieved in some ways, as profit disappointments at Gooch & Housego have tended to signal trouble more widely for the global economy," Mould added.
"Since the company listed in 1997, year-on-year drops in profit have been relatively rare. Prior stumbles came in 2002 (bursting of the tech bubble and a US recession), 2009 (great financial crisis), 2012 (European debt crisis), 2016 (global growth pause) and then 2020 as the pandemic swept around the world."
The company's Chief Executive Mark Webster said the firm will "work hard" to increase its production capacity.
"As a result we expect trading levels to accelerate in the second half," he added.
By Paul McGowan; [email protected]
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