GYG Plc (LON:GYG) has released a trading update this morning confirming that they have seen a positive uplift in trading at the start of the year and expect full year results to be ahead of current market expectations. The core refit business has seen continued improvements in the trading environment in the first four months of the year and further progress in the New Build segment has also contributed positively to the group’s performance. We are upgrading our forecasts as a result, and now expect adj. EBITDA in 2019E of €3.3m (vs. €3.0m previously) with adj. PBT of €1.6m (vs. €1.3m previously). In our view, this is an encouraging update and is further evidence that the trading environment in refit continues to improve as demand begins to normalise. Even on upgraded forecasts, our 2021E expectations remain 21% below the 2017 outturn at the adjusted PBT level highlighting the extent of a geared recovery on offer.
Trading update: GYG has released a positive trading update this morning. Trading in the core refit business has continued to improve in the first four months of the year, and further progress has been made in the New Build segment, resulting in a positive uplift in trading. The order book in both refit and New Build appears to be building well. This is an encouraging update for the group as they come off what was clearly a challenging year in 2018A. Demand in refit now looks to be normalising and the group appear to have capitalised on this well. The Group continues to strengthen its operational capability and is well positioned to respond to any further market improvement.
Forecasts: We increase revenue by 2.0% through the forecast period driving a 10% upgrade to EBITDA in 2019E. We now expect revenue in 2019E of €56.1m (vs. €55.0m previously) growing to €61.2m in 2020E as a result of stronger revenue growth in the coatings division. We leave margin assumptions unchanged and expect adj. EBITDA of €3.3m in 2019E (€3.0m previously) growing to €4.6m in 2020E. Net debt based on these forecasts in 2019E is €5.8m (vs, €6.0m previously) going to €3.4m in 2020E (€m previously).
Valuation: The shares trade at 12.9x 2021E estimates that we believe have been conservatively set based on a record order book, remaining below 2017 levels which would imply a 9.7x P/E at the current price. We anticipate H1 results to show significant progress vs. last year and will revisit our FY assumptions again at this juncture. Given the current momentum of this business, our revised upward assumptions could well prove to be conservative.
