On the positive note, I do see very good entrepreneurship from the father, as demonstrated by his decision to relocate internal resources to the growing precision engineering segment. He did the decision to expand this segment at the peak of the commodity boom, which is +1 for his foresight.
I won't worry too much about ZGL's traditional offshore marine segment as its weight in the business mix is decreasing. Revenue is sitting on 34m, down from its 2007 peak of 77m. The annual report gives some insight that this segment will take time to recover.
The construction segment is still good, comparing to the offshore marine sector, the construction segment is a more stable source of revenue. 57m revenue is only marginally lower than its 2008 peak of 65m and is much higher than its 2007 figure of 40m.
The precise engineering segment is growing strongly, from 10m in 2007 to 34m in 2012, note these are revenue figures, I cannot get a detailed look into its sub-divisions, re how much profit is eaten by start ups, but I imagine the start-ups' commercialization costs have some negative effects on segment profitability in the near term. Because I saw this segment's EBIT margin dropped after acquiring those start-ups. Happy to be corrected if I'm wrong here, I think ZGL's existing PE division is still by large in a low margin business environment. It started off in 2007 with 12% EBIT margin, was 8% last year---while other matured manufacturer of medical devises or similar are doing 20%+ EBIT margin. If high-tech means high barriers of entry and high margin, the old PE division is not high-tech at all. The new PE earning power is yet to be proved.
The last segment is a small volume high margin business, I did not do research so cannot tell any.
Overall ZGL is an interesting company with low earning predictability, (I don't like to use the word low earning quality as contrary to some analysts), I would have a closer look after election :)
ZGL Price at posting:
23.0¢ Sentiment: None Disclosure: Held
