The AIM portfolio: Our AIM portfolio provides investors with Inheritance Tax relief after two years through investment in 26 smaller, high growth AIM companies. The portfolio allows investors to retain control over their investments, and aims to achieve growth above inflation.
Last week Gooch & Housego replaced Mulberry in our AIM portfolio. This change arises as we re-evaluate the fundamentals of Mulberry which we view as providing limited potential long-term growth. We view Gooch & Housego as having more favourable long-term growth prospects.
Company Analysis: Gooch & Housego
Function: A Global leader in Photonics solutions for Industrial, Aerospace & Defence, Life Sciences and Scientific Research applications.
Gooch & Housego (G&H) continued to build on current success in operations in 2015, building a strong balance sheet for future operations. A closer look at the fundamentals reveals some solid figures over the past 3 years. Revenue has increased year on year since 2011, with a 12.3% increase this year. Adjusted profit before tax increased by 12.9%, and EPS was up 11% (and has been increasing since 2012). In 2015, it appears that G&H has not only met profit and revenue targets, but has also been able to fund further strategic investment whilst achieving its strategic objectives.
The firm benefits from diversification of operations, which works to offset the cyclical nature of some of G&H’s core markets. This was evident when looking at the company’s financials. The key driver for growth in the first half of the year was the use of lasers in microelectronic manufacturing, along with the use of modulator and amplifier systems for telecommunications. Where this demand fell away in the second half of the year, stronger demand was seen in high reliability fibre couplers used in amplifiers for undersea cabling. The business is obviously being effectively managed from a strategic point of view.
The Systems Technology Group is expected to heavily contribute to the business’ performance in 2016 by expanding and gaining more funding for key projects. In particular, funding was secured in 2015 for a space satellite communications project ‘SatCom’ which is funded by both European and UK Space Agencies, and directly by the EU. This project is intended to establish G&H’s position as a market leader in space photonics. Commercial income is expected from the project in 2016, making G&H an attractive investment going into 2016.
A key highlight from 2015 in terms of future investment is that the firm has recently experienced a change in key management, with the implementation of a new CEO and executive team throughout the year. The team is focused on delivering strategic efficiency and achieving growth goals. Throughout the year, new lean manufacturing principles have been introduced to all sites which are expected to improve manufacturing performance in 2016. The firm has improved processes to invest only in the highest return R&D projects, and has worked hard to acquire new talented and experienced individuals this year to run its new R&D projects. Additionally, according to the CEO’s annual statement, G&H is financially prepared to make strategic acquisitions in 2016 which will increase its position in the market.
Based on the fundamentals and future opportunities, Gooch & Housego seems well positioned to benefit from changes made this year, and seems poised to expand into new markets and extend its reach in current markets.
Opinions constitute our judgment as of this date and are subject to change without warning. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment. Past performance is not a reliable indicator of future results and forecasts are not a reliable indicator of future performance. Raymond James nor any connected company accepts responsibility for any direct or indirect or on sequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon any information contained in this document. The information in this document does not constitute advice or a recommendation and you should not make any investment decisions on the basis of it. The information in this document was correct as of 21/01/2016.