Reub Grcnp

I’m long $GHH.L / $GHH (AIM: Gooch & Housego). ~£230M market cap (EV/Revenue of 1.56x). 77-year-old photonics company most investors have never heard of. Makes photonics components you've never heard of for defence systems, subsea cables, and medical lasers. Order book just hit £168M — up 61% in 18 months. Yet the company trades around ~14x FY27 earnings. To me, the setup looks mispriced. $GHH grows its own optical crystals and polishes optics to sub-angstrom smoothness. That’s 0.1 nanometres — roughly the diameter of a hydrogen atom.Their Ilminster facility is one of only a handful globally capable of producing this precision at industrial scale. These optics go into ring laser gyroscopes that navigate fighter jets, submarines, and missile systems. Which matters because the defence order book is accelerating fast: Sep 2024: £104M Mar 2025: £121M Sep 2025: £142M Feb 2026: £168M European rearmament isn’t just headlines — it’s showing up as signed contracts for periscopes, laser protection coatings, and sighting systems for armoured vehicles. But the real story here is the margin expansion: FY22: 7.1% FY23: 7.6% FY24: 7.7% FY25: 9.6% Long-term target: ~15% That jump from 7.7% → 9.6% produced 37% more operating profit on just 11% revenue growth. Operational gearing is starting to kick in. And they’re only halfway to their margin target. The CEO’s strategy is straightforward. Charlie Peppiatt joined in 2022. Former CEO of Stadium Group, EVP at TT Electronics, and VP Global Ops at Laird. His playbook: • Outsource commodity manufacturing to Asia • Exit low-margin product lines • Acquire niche defence photonics businesses • Compound margins through specialization So far, execution has been disciplined. They’ve completed four acquisitions in two years, all small and defence-focused: • Artemis Optical — laser protection coatings • GS Optics — polymer optics • Phoenix Optical — precision optics in Wales • Global Photonics — periscopes for US defence primes (Florida) Total spend: ~£35M. Classic bolt-on M&A strategy. But the part almost nobody is talking about: Last month $RTX (Raytheon) announced a US Air Force contract to build domestic TFLN wafer manufacturing. And the production site? G&H’s Cleveland, Ohio facility. TFLN — thin-film lithium niobate — is one of the most important materials for next-generation optical interconnects. As data centres move toward 1.6T and 3.2T optical links, traditional silicon photonics modulators are hitting limits on speed and power. TFLN modulators can run: • 100+ GHz bandwidth • Sub-1V drive voltages • ~10x lower power consumption Market estimates suggest ~$190M today → ~$2B by 2029. There’s another wrinkle. Today, most TFLN wafer supply comes from China. G&H is effectively being positioned as a US domestic supplier. That means potential customers across: • the US defence industrial base • photonics companies • hyperscale AI data centre infrastructure They already grow the lithium niobate crystals. Raytheon is transferring the ion-slicing wafer process. Meanwhile, another G&H business quietly sits in a completely different critical infrastructure. Their Torquay facility makes fibre optic couplersused inside subsea cable repeaters. These repeaters sit roughly every 50 miles across the ocean floor. And ~99% of global internet traffic — including AI training data — flows through subsea fibre. Subsea demand actually grew through FY25 even while much of the industrial semiconductor market declined. Valuation is where the disconnect shows up. $GHH today: • ~24x trailing adjusted P/E • ~14x FY27E P/E • ~7.8x FY27E EV/EBITDA Peers: • $RSW (Renishaw) → ~25–30x • Jenoptik → ~15–20x • DiscoverIE → ~18–22x G&H trades cheaper than all of them, despite arguably having the cleanest margin expansion story. Downside risks: • Defence order book plateaus • Industrial semiconductor recovery delayed again • Supply chain disruption (China round two) • TFLN takes longer than expected to scale commercially For me, the defence exposure provides a floor while the rest remains upside optionality. The single metric I’m watching: adjusted operating margin. Every +1% margin on ~£170M revenue adds ~£1.7M operating profit. Moving from 10% → 15% margins would add roughly £8.5M profit. That alone could shift equity value by £100M+. Next catalyst: H1 FY26 results in June. If margins cross 10%, the market may start repricing the story. TLDR: $GHH looks like a quiet compounder in photonics infrastructure. • Record order book (+61%) • Margins compounding toward 15% • Disciplined CEO executing bolt-on acquisitions • Raytheon-backed TFLN manufacturing = AI infrastructure optionality • Subsea fibre exposure to global data growth • Trading at ~14x forward earnings At ~£230M market cap, that risk/reward looks compelling to me. Long $GHH. DYOR / NFA.