Company Overview: GUD Holdings Limited (ASX: GUD) is mainly involved in two activity areas – automotive aftermarket and water products. Under the automotive segment, the company is involved in the distribution and sale of aftermarket parts and accessories for cars, trucks, agricultural and mining equipment. The company also sells pumps and pressure systems for households, water transfer pumps, swimming pool products, etc. The company was listed on ASX on 30 June 1962.

GUD Details

Key Takeaways from FY21 Results: During FY21 (year ending 30 June 2021), GUD witnessed decent performance across its Automotive portfolio, supported by organic and acquired growth. Key takeaways from FY21 results are as follows:

• Increase in Revenue: For FY21, the company reported total revenue of $557 million, up by 27.2% from the previous year, supported by 24% YoY revenue growth in Australia and 37% YoY revenue growth in New Zealand.
• Rise in Underlying EBIT: Reported underlying EBIT for FY21 stood at $101.2 million, up 25.4% on the previous year, due to higher Automotive end-user demand through the year as well as a contribution of $6.7 million from the newly acquired entities.
• Rise in Statutory NPAT: Statutory NPAT for FY21 stood at $61.0 million, up by 39.6% on FY20.
• Increase in Net Debt: At the end of FY21, the company had a net debt of $146.6 million, up by $4.4 million on the pcp.
• Rise in Cash Balance: As at 30 June 2021, the company had cash and cash equivalent of $42.59 million, up from $29.98 million as at 30 June 2020.

Five Year Financial Summary (Source: Analysis by Kalkine Group)

Rise in FY21 Dividend: For H2FY21, GUD has paid a fully franked final dividend of 32.0 cents per share, taking the total FY21 dividend to 57 cents per share, which is 20 cents higher than the previous year, reflecting improved economic conditions. The total FY21 dividend represents a pay-out ratio of 83.7% of underlying NPAT. From FY17 to FY21, the company’s dividend has increased at a CAGR of 5.51%, demonstrating the company’s focus on rewarding its shareholders via dividends. At CMP of $10.08, the company’s annual dividend yield stood at ~5.67%, which is higher than the 5-year average dividend yield of ~4.16%.

Dividend Trend (Source: Analysis by Kalkine Group)

Key Metrics: Return on capital employed (ROCE) for FY21 stood at 12%, up from 11.6% in FY20, demonstrating that the company has improved its ability to generate profit from its capital. ROE for FY21 stood at 16.5%, slightly down from 17.5% in FY20. Return on Assets (ROA) for FY21 stood at 7.8%, up from 7.5% in FY20. Current ratio for FY21 stood 2.68x, slightly down from 2.69x in FY20. Cash cycle for FY21 stood at 181.4 days, down from 194.6 days in FY20.

Liquidity and ROCE Trend (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 37.72% of the total shareholding, while the top four constitute the maximum holding. Aware Super and Perpetual Investment Management Limited are holding a maximum stake in the company at 6.54% and 6.06%, respectively, as also highlighted in the chart below:

(Source: Analysis by Kalkine Group)

Change of Director’s Interest: On 27 September 2021, one of the company’s Directors, Graeme Whickman, transferred 2,000 FPO shares from direct to indirect ownership via contribution to superannuation fund - T Whickman Investments Pty Ltd.

Key Risks:

• COVID-19 Uncertainties: During FY21, the company witnessed COVID-19 impacts at several levels, which impacted its overall profitability. The uncertainty surrounding the COVID-19 pandemic and its impact on export markets is a key risk for the company. The company believes that COVID-19 lock-downs and mobility restrictions could impact its volume growth in FY22.
• Foreign Currency Risk: Since the company is operating in different countries, it is exposed to risks related to fluctuations in the foreign currency exchange rates.

Outlook: Looking ahead, the company expects the contribution from the acquired businesses, and focussed margin management to be the key profit growth drivers in FY22. GUD believes that the acquisition opportunities are still available, and it plans to proceed with calculated caution to pursue its acquisition pathway. The company expects the performance of the Water business to improve in FY22, supported by the improving manufacturing environment. The company believes that its decent market position and growth in the car parc will help in achieving organic growth in the Automotive aftermarket sector. The company will provide a further update on its guidance at the next Annual General Meeting, which will be conducted on 29 October 2021.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of GUD is trading lower than the average 52-week price level band of $9.91 - $13.69, offering a decent opportunity for accumulation. The stock has been valued using an EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at a slight discount to its peers, considering the uncertainty surrounding the impact of COVID-19 lock-downs and mobility restrictions, and lower demand in export markets. For the valuation purpose, peers such as Eagers Automotive Ltd (ASX: APE), ARB Corp (ASX: ARB), Bapcor Ltd (ASX: BAP), etc., have been considered. Considering the company’s improved financial performance in FY21, expected contribution from the acquired businesses, increase in FY21 dividend, current trading level and valuation, we give a “Buy” rating on the stock at the current market price of $10.08, as on 6 October 2021, 11:30 PM (GMT+10), Sydney, Eastern Australia.

GUD Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined:

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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