Gooch & Housego

Optical components and systems maker Gooch & Housego (GHH) is preparing for a tough second half, although the company believes opportunities in newer markets should help it emerge from recession stronger than ever.

The six months to March were torrid for the Somerset-headquartered group, as a collapse in its core industrial markets combined painfully with unfavourable currency movements. Gooch's debt levels came close to breaking banking covenants and this and other worries caused the shares to fall to an all-time low of 30p in March.

With banking agreements now renegotiated, the shares have recovered somewhat but, as chief executive Gareth Jones admits, Gooch is not out of the water. ‘Our core industrial lasers market is suffering from the lack of consumer spending… [and] we believe it will continue to be slow for the next six months.’

The decline in this area – where Gooch supplies components for tools used by manufacturers of mobile phones, TVs and the like – allied with the weakness of sterling, saw pre-tax profits slump to just £39,000 in the half to March from £2.2m in the same period last year. Revenues grew 20.1% to £18.8m, though, if October’s acquisition of California-based General Optics and currency effects are ignored, they fell 18.2%.

Although the Californian addition has suffered from a depressed commercial airline market, it provides the group with an important entry into the defence market. This, along with moves into medical markets in the last few years, not only provides some defensive cover while consumer-facing sectors decline, but also offer growth prospects, with Gooch ‘now bidding for some large and long-term contracts that could be the key to our future,’ according to Jones.

Looking forward, the demand for industrial lasers will certainly come back, but the question is when. Until this materialises, the shares may be volatile performers but we remain strong fans of Gooch on a long-term view.