Goodwin Plc. is another holding position at the current date.

Goodwin Plc. should be viewed as a long-term, semi-cyclical position, compounding earnings at an above average rate into the foreseeable future.

1. Vigilant Leadership

img_0134* TSR = Total Shareholders return

The Goodwin management and owners have displayed consistent vigilant leadership of the company. Whilst maintaining a targeted Debt/Equity below o.3, the company has compounded on a 32% average for 20 years displaying complete organic growth and benefits from wise acquisitions (which is now common in the industrials industry), which further explains book value growth of 14% per annum. 

Management Incentives:

  • Long-term Incentive plan: Based on the growth of total shareholder return (10% minimum per annum.)
  • Bonus: Maximum is 60% of base salary for management.
  • Goodwin has expressed explicitly, they have no motivation to place excessive annual bonuses as prime incentives for the management team.
  • Goodwin Family own 51% of shares outstanding. John and Richard Goodwin have been in operations since 1992, with succession plans in place for younger family members.
  • NO share option scheme since 2000 and NO expectational items recorded for 15 years!!

2. Long-term Prospects

Past:

The Goodwin brothers (John & Richard) over the last 20 years have turned the company around from a highly capital intensive, low margin operator into a consistently high compounding machine, whilst maintaining a minimal debt balance to ensure growth is organic and relevant acquisitions were made.

Persistent Products/services:

  • Mechanical Engineering: Goodwin source, produce and manufacture high efficient facilities. Supply general engineering products to large construction projects & oil refineries, offshore structural, bridges and others.
  • Refractory Engineering: Here Goodwin develops, manufacture and sell engineering products to the following operations: Jewellery casting, aerospace, tyre moulding and others.

Technological Advancements: 

  • There is potential for the industry (diversified industrials) to turn into a high-tech research and development environment, with the core engineering taking place outside of the UK into Eastern European expansion.
  • However, operational technological advancements can aid the company in cutting costs I.E. 3d printing. Nonetheless, historically Goodwin have opted for the traditional approach and may be slow to react.

Weaknesses/Risks: (Long-term)

  1. Increasing competition from firms in low-cost countries
  2. Increasing requirements in research and development costs
  3. Demand for products/services may vary slightly, due to competitors actions (oligopoly), economic cycles or international friction.

Solutions to risks: 

  1. Goodwin operates across a vast array of geographies. This reduces the risk of competition in any one territory.
  2. Goodwin operates in both Mechanical and refractory engineering, thus mitigating the risk of one particular product or service dragging costs. Also, NO key customer holds 10%> of total revenues, thus reducing the risk of losing a key customer.
  3. Goodwin generates significant revenue from WorldWide energy markets. Therefore, medium-longterm growing demand for global energy will persist in these markets.

3. Stable and Understandable business economics

Stability:

goodwin-eps

goodwin d:e.png

Goodwin bv.png

goodwin roe.png

 

Source: Buffettbooks

Understandable business economics

Barriers to entry: 

  1. 19% ROIC (10 Year Ave.) – Very consistent asset allocation by the Goodwin management over time.
  2. Diversified WorldWide, creating very strong global networks, opportunities and against new competitors.
  3. Competitive prices and timely deliveries (according to Goodwin)
  4. Family majority owned business, great consistency and protection of values
  5. Total shareholder return has outperformed all UK indices over the past 20 years!
  6. NOT a single exceptional item has been recorded for 15 years, no wastage!

Major Business segments:

  • Mechanical Engineering (operate in emerging markets including UK, China, Brazil and Thailand)
  • Refractory Engineering ( operational subsidiaries supply to 72 countries)

Major Competition: 

  • Rotork, Sprue Aegis, Marshalls and Weir Group

Rank In Industry: 

  • No.1 in mechanical engineering (according to Goodwin Plc. Annual reports )

Self-funded growth: 

* Share capital: £720,000             * Retained earnings: £87 Million

* Net borrowings: £27 Million

Asset-based balance sheet:

* Cash: £5 Million                    * Profit: £7 Million

* Property, Plant & Equipment: £62 Million (recorded at historical cost from the 1950’s, could be understated and worth much more in today’s auction market.) – Hidden value potential!

Reasonable Growth prospects: 

Short-term:

  • A contraction in growth, due oil&gas industries are slowing up and have seen $530 Billion in cancellation of projects WorldWide. Also, reduced spending in jewellery markets. This may also explain the recent years’ huge reduction in share price for Goodwin.

Long-term: 

  • An addition of new market sectors and opportunities for sensible acquisitions.
  • Fossil fuels are by far still the most dominant energy resources around the globe. This market will continue to grow with ageing/expanding populations and higher living standards. 
  • Over the past 50 years per person, energy consumption has increased by 50%.
  • Increasing emerging countries and markets will ensure long-term demand for fossil fuels, energy resources and the industrials industry.

Competitive Advantages: (MOATS !!!

1. Operations are WorldWide   2. No.1 in manufacturing engineering

3. competitive prices and timely deliveries      4. Industry stickiness (fossil fuels)

4. Attractive Price to Valuation

From computing a Book value growth and future discounted cash flow model analysis on Goodwin Plc. and discounting back to today’s present value using a 6% discount rate to be Intrinsically valued between £20-£27 per share. Which is £140 Million – £190 Million for the entire company.

In addition, further valuation metrics were also considered. These are not limited.

  • Based on a current market price £17.32

* P/E = 16          * P/B = 1.6            * P/S = 0.95

* Acquirer’s Multiple ® = 12.4 = 8% operating earnings return.

Such an indicated intrinsic value and accompanying valuation metrics, one would classify Goodwin Plc. as a generally undervalued company, selling at a fair price providing a quality compounding machine for the long-haul with proven stellar performance.

5. Summary

Goodwin Plc. is a traditional engineering company, with an outstanding track record, under the efficient Goodwin family brothers majority ownership. The superior asset allocation displayed from the two will certainly aid the company through depressed economic periods and short-term contracting sectors. I believe, a continuation of sizable and sensible acquisitions will maintain the book value growth over the foreseeable future, even if Goodwin Plc maintains half of the growth it has been able to achieve over the last 20 years the company will still perform exceptionally.

I hope you enjoyed this Investment/company analysis on Goodwin Plc.

Happy New Year!

Jordonlee W. Smith

 

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