GDWN.L - Goodwin plc

[kab60]

Their reporting periods are a bit wack, they reported net results for the 9 months ending January 31 2015 of 13,5m which is 1m less yoy.

[kab60]

They're creating 50 new jobs: http://www.stokesentinel.co.uk/50-new-jobs-created-Hanley-engineering-giant/story-26243242-detail/story.html

They seem to be very good at attracting government r&d funds. No doubt because they are an important job creater. Their taking om 125 appretices also shows their long term nature - no doubt with the blessing of officials.

[Libs]

My final guess is: FY revenues around 115MM ( down from 130MM) and margins of 12% (down from 18%) = 13.8MM pre-tax = $10.6MM net = 147p EPS.

 

At 2150p / 147p eps  that's 14.6X earnings.

 

I made this a 3% position and expect to hold it for a very long time.

 

 

[fa21212]

Skanjete,

 

Thank you for the interesting find. Indeed the company has performed quite well over a long period of time. In terms of future management, do you have a sense for how long John and Richard plan to stay around? They indicated in the latest annual letter that they were engaging with in succession planning discussions. Does it concern you that their 30-35 year old sons are on the board of directors and heads of some of the major decisions. Maybe these young ones are all stars or maybe they aren't. My concern would be that is John and Richard plan to exit the business at some point soon, and their kids are running the business this could potentially change the prospects of the business. The way I understand their business (and I have to do much more work on it), they seem like a niche manufacturer of custom made goods. It's not recurring sales and it sounds like they have competition on their bidding activity. The strength of their relationships with customers along with the ability to skillfully manufacture these products is critical to success. I don't think it's a monopoly where you could have an idiot run it and you would be fine. I guess it concerns me that there is some degree of nepotism going on and it seems like a potentially competitive business. Of course I'm always looking for good counterpoints that changes my mind. I would love to make 20-30% a year for the next 10 years with Goodwin, but I want to make sure I have a good chance of doing so based on the fact pattern present. Would love to hear your or anyone else's thoughts on the above or any other factors that you think are critical to the long term investment case.

[kab60]

I had some of the same thoughts. What eases me is they have so much money tied up themselves. Might be an advantage if the sons have been raised with the same Goodwin DNA of doing business. By the way, what do you think og FY results? Looked good to me

[fa21212]

Haven't looked in depth at the results but obviously their business is in free fall due to oil prices. Not sure what $ oil level they need to make the business go. In terms of nepotism, I think it's a red flag despite their ownership. If you look at Warren Buffett's kids or John Malone's kids they aren't great investors simply because their parents spent hundreds of thousands of hours investing in businesses. I don't think investment skill is hereditary and the fact that they are giving their kids so much power and wealth early on suggests that they are more interested in creating a dynasty than they are about maximizing shareholder value. I think the 3G guys put their thoughts on Nepotism best. They characterized such that if you're looking for the top 0.1% in a given field, it's very unlikely to be your kid and that's why they don't hire any of their own kids in their businesses.

[kab60]

According to earnings oil is 45 pct. of business. But I don't think it is in freefall. Agree on your points about nepotism but if you look at their compensation scheme - no options and decent dividend while growing - they seem to be very fair towards shareholders. Buyback would be good but stock is already very illiquid.

[farbelow]

Haven't looked in depth at the results but obviously their business is in free fall due to oil prices. ...

 

I would not call Goodwin's business in 'free fall'. Their revenue for 2015 (fy ends 30 April) was 3% down compared to FY2014. Second half of FY2015 was 10% down year-on-year.

 

[fa21212]

I focus on profits not revenues. Profits were down I believe close to 20%. Obviously oil and gas is a cyclical business and I would rather buy at the bottom of cycle with a lowish type multiple than at top of cycle even with a low multiple. So it could be an interesting opportunity. What concerns me more is if I want to make significant money on this stock (say 20%+), I likely need some of the capital allocation magic of Richard and John in terms of M&A / organic investment. If his 30 year old sons are going to be running this business 3 years from now, I don't want to give my money to someone who inherited their position with no track record and little experience in capital allocation. While I agree compensation is fair to shareholders, I would rather pay top dollar to someone who is going to make me very wealthy (look at how much Mike Pearson made and also how much value he created for shareholders over the last near decade), rather than getting a bargain on the son of some wealthy guy who isn't necessarily nearly as talented as his father.

[kab60]

Profit was 24m vs 20m. That's a PE of less than 10. Their roe is high, debt is low, and they've always made money it seems. I understand your concern but like the odds. They seemingly did some large investments that might start to add to profits. They also hired almost 80 people recently, so I assume activity is pretty good.

 

[kab60]

Q1 profit before tax at 3,8m vs 7,2m. Margins coming down while there was a 36 pct order uptick.

http://hsprod.investis.com/servlet/HsPublic?context=ir.access&ir_option=RNS_NEWS&item=2188642319597568&ir_client_id=319

[Jurgis]

Half year report today: http://hsprod.investis.com/servlet/HsPublic?context=ir.access&ir_option=RNS_NEWS&item=2301477552914432&ir_client_id=319

 

Positive: they are still profitable

Negative: both sales and margins dropping. OCF 2M, Capex/acquisitions 11M

 

2016/2017 outlook negative.

 

Question: what exactly did they spend 3.5M of cash for "intangible assets" on? There's no explanation except for "intangible assets were increased by £3,500,000".  ???

 

Stock down 10% today. I have not added.

[kab60]

I couldn't figure it out either and wrote John Goodwin, I'll update if I get an answer. They're forced to accept lower margins but sales order input is up 16 percent y/o/y and they keep making pretty big investments. I think it makes sense to give up price and keep activity relatively high considering they took on 80 apprentices and plan for the very long term but it's difficult to know considering the low level of information. I really like these guys and would love to hear more from them.

[kab60]

I got this reply from Goodwin:

 

Thank you for your interest and question regarding note 10 on intangible assets.

 

The intangibles cover items such as intellectual property, brand names, trade marks and patents as well as goodwill . You will have noted we have purchased, in October, the rights to sell vermiculite and perlite under the registered trade mark Silvaperl®

 

Both vermiculite and perlite are heat resistant minerals that are used in many industries but perhaps best known by consumers in the horticultural industry. Industrially they are used in areas that require insulation and high temperature protection.(examples are shown on the website http://www.dupreminerals.com/en/

 

This vertically integrates very nicely into our existing facilities and production line giving better utilisation of plant and gives us added market potential. We expect to be able to talk more about the success of this in the year end accounts.

 

Para 10 also talks about adjustments because we purchased the minority interests as our partners were retiring announced in last year’s accounts of subsidiaries in India and Brazil.

[Jurgis]

Thanks kab60.

 

 

 

 

I have to keep reminding myself that GDWN operates on the possibly-more-profitable fringes of commodity businesses. They've done great in this space in the past, but sometimes it hits them. We'll see how they will negotiate this downturn.

 

Still no additions to my position.

[Jurgis]

Interim statement: http://hsprod.investis.com/servlet/HsPublic?context=ir.access&ir_option=RNS_NEWS&item=2395891671498752&ir_client_id=319

 

I did not have time to look at this in depth yet.

 

Shares jumped 20% or so.

[kab60]

FY prelim results out. Doesn't look great, but I don't suppose anyone expected that. Not sure I like that they'll change the remunertion policy to try and get TSR up. Haven't seen the details but if it's focused on revenue and pretax profits there's a risk of low roic investments. They already have some peculiar businesses but since their track record seems pretty great and they have lots of skin in the game I never thought much of it. I don't suppose anyone did the math? (Not sure it's possible with their disclosures).

[kab60]

I'm glad these guys don't do webdesign/presentations for a living. Here's a recent one: http://www.goodwin.co.uk/2016/

 

Did anyone find out how the new incentive program is set up? It should be in that presentation, but it's a mess.

[Jurgis]

Preliminary results out: http://otp.investis.com/clients/uk/goodwin_plc/rns_teaser/regulatory-story.aspx?cid=1427&newsid=910754

 

Sales up, income down, no FCF as usual.

 

This might be the time to buy for next upturn, but I'm more likely to sell... just take my shares for (almost) free!!!  ::)  8)

[skanjete]

Preliminary results out: http://otp.investis.com/clients/uk/goodwin_plc/rns_teaser/regulatory-story.aspx?cid=1427&newsid=910754

 

Sales up, income down, no FCF as usual.

 

This might be the time to buy for next upturn, but I'm more likely to sell... just take my shares for (almost) free!!!  ::)  8)

 

Life seems to be rather difficult at the moment for the Goodwins.

But I also read some positive sounds in their report. Their profit has stabilised more or less if one takes the one-off costs into account. We'll see what the future brings...

 

FCF : they still pay a decent dividend.

I would love to buy some more at prices under 15£.

[kab60]

It seems like the market forgot about Goodwin and stopped checking their announcements. It has a lot of the attributes I like at around 1,3xunderstated book value. While olie & gas has been hammered, these guys have been profitable and invested throughout. They could've juiced earnings by taking cost out quicker, but these guys are very long term, and their biggest resource is their employees, so I understand why they've hesitated. While oil & gas might never return to its former glory (I view that as an option), the jewelry business is growing nicely. In the most recent earnings announcement they're guiding for increased profitability since a major competitor has ceased doing business. So you have the oil & gas business dragging down the overall profitability and masking nice growth in another part of this mini conglomerate. At the same time, they're working on new projects like nuclear decommissioning to make up for the weakness in o&g. What is this thing worth? Not sure, but they recently sold a plot of land in India for 14xbook value, so there's a lot of value in the balance sheet, and if they can just get half the margins that they did at their peak it's around 10xearnings. I think that's likely considering how much they've invested since then. And if o&g ever picks up, I think this is a coiled spring.

 

Last earnings announcement:

 

2018/19 Outlook

 

Despite the continued shortage of work within our foundry, where we have been taking the opportunity of enhancing our facility and capacity in this quiet period of activity, we expect the Group overall to start showing improved profitability and cash flow by the financial year end 30th April 2018.

 

This improvement is a feature of a continued expansion of activity and profitability in the refractory engineering part of the Group especially in our eight  companies that supply consumables to the jewellery casting industry which, in line with the world economy overall, is in a period of revival. The performance of these refractory companies has also been enhanced by the demise of our major world competitor based in the USA, who was the world leader 20 years ago. In September 2017 they finally closed their doors, which has resulted in a substantial surge in order input for our price-competitive, consistent products that we have developed a global reputation for supplying.

 

As mentioned in the year end accounts to 30th April 2017, excellent progress is being made in India where  there is significant growth in the overall economy and our submersible pump company and jewellery investment powder company are expected to achieve record trading results for the year ending 30th April 2018. The results in our Indian submersible pump company are also benefitting from sales orders arriving from our newly formed pump company in South Africa, which we are pleased to report will make respectable profits and sales in its first full year of trading.

 

http://otp.investis.com/clients/uk/goodwin_plc/rns_teaser/regulatory-story.aspx?cid=1427&newsid=959123

 

Disclosure: Long

[skanjete]

It seems like the market forgot about Goodwin and stopped checking their announcements. It has a lot of the attributes I like at around 1,3xunderstated book value. While olie & gas has been hammered, these guys have been profitable and invested throughout. They could've juiced earnings by taking cost out quicker, but these guys are very long term, and their biggest resource is their employees, so I understand why they've hesitated. While oil & gas might never return to its former glory (I view that as an option), the jewelry business is growing nicely. In the most recent earnings announcement they're guiding for increased profitability since a major competitor has ceased doing business. So you have the oil & gas business dragging down the overall profitability and masking nice growth in another part of this mini conglomerate. At the same time, they're working on new projects like nuclear decommissioning to make up for the weakness in o&g. What is this thing worth? Not sure, but they recently sold a plot of land in India for 14xbook value, so there's a lot of value in the balance sheet, and if they can just get half the margins that they did at their peak it's around 10xearnings. I think that's likely considering how much they've invested since then. And if o&g ever picks up, I think this is a coiled spring.

 

Last earnings announcement:

 

2018/19 Outlook

 

Despite the continued shortage of work within our foundry, where we have been taking the opportunity of enhancing our facility and capacity in this quiet period of activity, we expect the Group overall to start showing improved profitability and cash flow by the financial year end 30th April 2018.

 

This improvement is a feature of a continued expansion of activity and profitability in the refractory engineering part of the Group especially in our eight  companies that supply consumables to the jewellery casting industry which, in line with the world economy overall, is in a period of revival. The performance of these refractory companies has also been enhanced by the demise of our major world competitor based in the USA, who was the world leader 20 years ago. In September 2017 they finally closed their doors, which has resulted in a substantial surge in order input for our price-competitive, consistent products that we have developed a global reputation for supplying.

 

As mentioned in the year end accounts to 30th April 2017, excellent progress is being made in India where  there is significant growth in the overall economy and our submersible pump company and jewellery investment powder company are expected to achieve record trading results for the year ending 30th April 2018. The results in our Indian submersible pump company are also benefitting from sales orders arriving from our newly formed pump company in South Africa, which we are pleased to report will make respectable profits and sales in its first full year of trading.

 

http://otp.investis.com/clients/uk/goodwin_plc/rns_teaser/regulatory-story.aspx?cid=1427&newsid=959123

 

Disclosure: Long

 

 

I have the same feeling. There was a lot to like in their last update.

[kab60]

Good results. Massive cashflow, large debt paydown, doubling dividend and sounds upbeat about the coming years. Stock up 24 pct but still cheap. I consider adding though it's already a 10 pct position.

 

http://otp.investis.com/clients/uk/goodwin_plc/rns/regulatory-story.aspx?cid=1427&newsid=1128056