Shares for the future: a FTSE 250 stock with earning power

Last year, Goodwin (LSE:GDWN) hit a milestone. It exceeded the profit that it had achieved over a decade earlier, before the oil price crashed and revenue and profit went into a tailspin.

The primary reason for Goodwin’s recovery is an extended pivot to supply cast and machined products to the nuclear industry and UK and US navy frigate and submarine building programmes.

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The company had begun fulfilling a long-anticipated contract to supply 237 steel boxes, each weighing 29 tonnes, for the containment of nuclear waste at Sellafield. So far, it has supplied 90 boxes, and ultimately 747 may be required.

As the only company in the UK that can supply the boxes contractually, Goodwin is confident that orders will run and run. Due to the size of the castings required and their metallurgical specification, Goodwin tells me it is probably the only UK company that could make the boxes any way.

Now that it has ironed out the manufacturing processes for these newish products and ramped up production, profitability may be returning to levels long anticipated in its Mechanical Engineering division. Profit increased 36% in the year to April 2025, and Goodwin earned a higher than average 15% return on capital.

Goodwin still makes valves for oil and gas pipelines, and in November its German subsidiary Noreva won its biggest-ever order ($15 million) to be supplied to a Liquefied Natural Gas (LNG) project over the next few years.

During the year to April 2025, perennially loss-making Easat, another subsidiary, also made a modest profit.

Easat originally made antennas for surveillance and air traffic control, but by developing and delivering whole air traffic control systems Goodwin says it has lowered the cost compared to those supplied by systems integrators.

It has taken longer than expected to convert prospects into sales, but later in the year Easat will have fully installed an air traffic control system at Cranfield Airport. It is also supplying the Royal Thai Airforce and an airport in Vietnam, so the business appears to be gaining momentum.

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Cash conversion exceeded 100% as Goodwin dialled back investment. In the past decade it has equipped its foundry to cast bigger components and built a new factory to manufacture a high-performance polymer resin, Ducoya, using a newly patented process.

Customer trials of the resin are under way, and Goodwin has installed powder-pressing machinery at Noreva, its German subsidiary, to make stock shapes and finished parts. Initially, Goodwin is targeting the aerospace and semiconductor industries.

Source: Goodwin annual reports.

There has been so much action in Mechanical Engineering, the division housing all the aforementioned businesses, that it’s easy to forget Refractory Engineering, Goodwin’s second, smaller segment which has been much more reliable in recent years.

Refractory Engineering processes minerals used to make jewellery and tyres, and vermiculite, which has insulating and fire-resistant properties.

Here, too, Goodwin has been investing. A new processing plant in India is supplying the huge domestic jewellery market, and manufacturing lithium ion battery fire blankets made from vermiculite. The company has developed a vermiculite fire extinguishing agent, AVD, and vermiculite fire extinguishers, which it believes outperform rivals. Sales, Goodwin, says, are building slowly.

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Neither division has been adversely affected by tariffs. Castings for the US navy are exempt, valves for US LNG customers are often imported into tariff-free countries. On a few occasions it has split the cost but mostly US customers pay the 10% surcharge. Exports to China have benefited from high tariffs on rival US refractory products.

Scoring Goodwin: price is the problem

Goodwin says its success comes from numerous unique, sometimes patented, and often vertically integrated capabilities applied to niche markets worth hundreds of millions of pounds, not billions. These do not attract large multinationals because of their small size and high barriers to entry.

To grow in the medium term, Goodwin must fill the niches it has been entering over the last decade. Meanwhile, it will be developing and extending its niches. One prospect is the next generation of nuclear submarines being developed by the AUKUS partnership. It is under contract to work on pre-manufacturing activities.

Developing new niches is complicated and it has often taken longer than Goodwin expects, but Goodwin has rewarded shareholders’ patience in the past.

The most difficult aspect of scoring Goodwin this year is the price score. Ordinarily, I use a normalised earnings multiple to calculate it. This is very high (the price is 37 times normalised profit).

The normalised multiple is calculated using average return on capital over the nine years since the oil price crashed in 2016. While the company pivoted, revenues were low, its foundry often operated at a loss, and capital expenditure was high. Although Goodwin remained profitable, after-tax return on capital was unusually low (it bottomed out at 7% in 2017).

Goodwin may experience a similar shock in future, but given the long-term pipeline of work in its mechanical engineering division, that seems unlikely. Even if history repeats itself, Goodwin is more diversified now. Indeed, it believes its newest business, Duvelco, will be the largest and most profitable in years to come (although this is jam tomorrow. It expects the first commercial sales later this year).

I think normalised profit underestimates Goodwin’s earning power. The company earned 26 times adjusted profit in 2025 when the company achieved 15% return on capital. This is probably a more sensible basis for judging the price. It elevates Goodwin’s score by almost a point. Last year, I gave a total score of 5.8 points.

22 Shares for the future

Here is the ranked list of Decision Engine shares. I review the scores at least once a year, soon after each company has published its annual report. The price scores are calculated using the share price prior to publication.

Generally, I consider shares that score more than 7 out of 10 to be good value. Shares that score 7 or less are good businesses that are not obviously cheap at the moment.

Cohort (LSE:CHRT) and Jet2 Ordinary Shares (LSE:JET2) have published annual reports and are due to be re-scored.

Click on a share's score to see a breakdown (scores may have changed due to movements in share price). Key: qual is the share’s score out of 9 for the three quality factors (capabilities, risks, and strategy), price is the price score from -3 to +1, ih% is the suggested ideal holding size as a percentage of the total value of a diversified portfolio, and ss% is the actual size of the Share Sleuth portfolio’s holding.

Last week’s Decision Engine table contained erroneous ih% sizes for Advanced Medical Solutions Group (LSE:AMS), Churchill China (LSE:CHH), Focusrite (LSE:TUNE) and James Halstead (LSE:JHD). I apologise for the error.

Richard Beddard is a freelance contributor and not a direct employee of interactive investor.  

Richard owns Goodwin and many shares in the Decision Engine. He weights his portfolio so it owns bigger holdings in the higher-scoring shares.

For more on the Decision Engine, please see Richard’s explainer.

Contact Richard Beddard by email: richard@beddard.net or on Twitter: @RichardBeddard