Shares in Gooch & Housego PLC (LON:GHH) scorched lower on Tuesday after the optical components manufacturer warned that its full-year profits would be £3.5mln-£4mln lower than expected as the US-China trade dispute hits demand for industrial lasers.
Reporting results for the six months to 31 March, the AIM-listed company said, while laser orders had increased in the second half, it was “assuming that industrial laser business will not return to 'normal' levels in FY 2019” and that it will only supply “known/high-certainty orders” as the trade dispute rumbles on in sync with a downturn in the semiconductor equipment and microelectronics sectors.
READ: China’s economic growth in serious peril as the US continues to ratchet up the pressure
While the firm's half-year revenue rose by 7.4% to £59.7mln, adjusted profit before tax dropped by 22.8% to £5.4mln as G&H saw lower micro-electronics volumes, delays in Aerospace & Defence contracts and made investment to expand capacity to address a surge in demand for undersea telecommunications products.
There were some positives, however, with G&H's non-industrial laser business expected to be in line with previous internal expectations, while fibre optics was “strong in general” and recent investment in hi-reliability fibre couplers predicted to result in a “step change” in the second half and a threefold increase in demand over the next three years.
Reflecting the board’s confidence, but acknowledging challenging industrial laser trading conditions, G&H's interim dividend was nudged up to 4.3p compared to 4.2p a year ago.
Chief executive Mark Webster stressed that G&H's technical innovation and its market leading position left him confident that the supply of critical components to industrial lasers will remain an important source of growth for the foreseeable future.
"We remain confident in the potential of the industrial laser sector and our other markets to provide attractive long term growth,” he said, adding that the group is continuing to invest in R&D and make appropriate acquisitions as it further diversifies and moves up the value chain.
Broker cuts target as shares drop
In a note to clients, analysts at 'house' broker finnCap reduced its target price for G&H shares to 1,250p from 1,475p.
G&H shares fell below the 1,000p level in early trading on Tuesday, but by mid morning had recovered above that mark, although still 24% lower at 1,025p.
Russ Mould, investment director at AJ Bell, said that as only a quarter of its sales are booked in sterling, the company "provides investors with a good snapshot of what is going on globally".
"Today’s first-half drop in earnings, the scrapping of a prior forecast of a second-half recovery in the industrial lasers operation and a profit warning are all therefore a concern. This is especially as Gooch & Housego has suffered just four drops in earnings since its 1997 listing and they all came during times of a slowdown or recession around the world.”
He noted that G&H’s rare profit stumbles came in 2002 after the bursting of the tech bubble and a US recession, in 2009 along with the great financial crisis and in 2012 and 2016 amid the European debt crisis and global growth pause.
-- Adds analyst comment, updates share price --