G.U.D. Holdings Limited 

GUD Details

Appointment of Director: G.U.D. Holdings Limited (ASX: GUD) manufactures, imports, distributes and sale of automotive with operations in Australia, New Zealand, France, and Spain. GUD has announced on 23 June 2021 the appointment of Professor John Pollaers as a company's non-executive director. Mr. Pollaers has strong strategic skills with experience in manufacturing processes and customer relationship management, expecting to contribute towards business growth in the future. 

Acquisitions on Track: GUD has acquired 100% holding in ACAD Limited and AMA Fully Equipped NZ Holding Pty Ltd, collectively called as G4CVA on 31 December 2020. The total consideration to acquire G4CVA stood at $70.379mn. GUD expects an expanded presence in automotive aftermarket parts through this acquisition. In addition, the company has announced the acquisition of Australian Clutch Services Pty Ltd (ACS) in March 2021. The acquisition for 100% share in ACS is finalized at an enterprise value of $32mn. The acquisitions are likely to be earnings accretive for FY21 and going forward.  

Trading in Line with Expectations: GUD has reported a 15% YoY organic sales growth in its Automotive division in 3QFY21. Similarly, water division has witnessed a 4% growth in its sales, during the same time span. The company has maintained a strong inventory position to meet the higher demand. 

1HFY21 Financial Highlights: GUD has posted an increase in revenue to $251.47mn in 1HFY21 against $227.11mn in 1HFY20 due to decent performance across all businesses. The company has posted an increase in profit to $31.28mn in 1HFY21 against $26.20mn in 1HFY20. It has reported an increase in cash balance to $34.86mn as on 31 December 2020 against $29.98mn as on 30 June 2020.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to Covid-19 uncertainties. The company has faced a decline in demand and supply from global markets due to Covid-19 situation. In addition, the company is operating in a highly competitive environment. Therefore, there is always a risk to lose market share from a close competitor.

Outlook:  The company has faced challenges in 1HFY21 due to Covid-19 situations, but the company expects a recovery in demand especially from the global markets, going forward. The company has witnessed a recovery in demand from the US above its expectations. The company does not expect any further government subsidy for FY21. The company is forecasting its underlying EBIT to be in a range of $98-$100mn for FY21. In addition, GUD expects cash conversion of ~80-85% for FY21.  

Valuation Methodology: EV/EBITDA based Relative Valuation Method (Illustrative) 

Source: 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 gave a return of ~-0.82% in the last one month and a return of ~-1.80% in the last three months. The current market capitalisation of GUD stands at ~$1.08bn as of 25 June 2021. The stock is currently trading slightly below the average 52-weeks’ price level range of ~$10.19-~$13.69. We have valued the stock using the EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in % terms). We believe that the company can trade at some discount as compared to its peer median, considering the company has posted an increase in administration expenses in 1HFY21, forex risk, integration risks, and an increase in total current liabilities as on 31 December 2020. For this purpose, we have taken peers Eagers Automotive Ltd (ASX: APE), Supply Network Ltd (ASX: SNL), Carbon Revolution Ltd (ASX: CBR) to name a few. Considering the company has registered an increase in NPAT in 1HFY21, strong inventory to meet recovery in demand for its products, acquisition synergies, organic sales growth in its Automotive division in 3QFY21, current trading levels, and valuation, we recommend a “Buy” rating on the stock at the current market price of $11.80, as on Jun 25, 2021, 11:45 AM (GMT+10), Sydney, Eastern Australia.

GUD Daily Technical Chart, Data Source: REFINITIV 

Carbon Revolution Limited 

CBR Details

Operational Developments: Carbon Revolution Limited (ASX: CBR) is engaged in the manufacture and sale of carbon fiber wheels. The company focuses on the research and development projects related to carbon fiber wheel technology. It is present in original equipment manufacturing (OEM), motorsports, aerospace, industrial and aftermarket industries. CBR has announced on 25 June 2021 launching its carbon fire wheels to be presented on the Ferrari 296 GTB. The carbon-fibre wheel option is 8kg lighter than Ferrari’s forged counterpart. The wheel program has now been commencing production. The company has also informed the market that it has appointed Andrew Higginbotham as Director of Operations. Mr. Higginbotham will be responsible for manufacturing, supply chain and industrialisation operations for the company.

Market Update: CBR has updated that one of its customers has temporarily suspended the production of vehicles due to shortage of semi-conductor chip used in the automotive supply chain. CBR expects its demand for ~1800 wheels may be impacted for FY21. The company expects its customer to recommence the production in late June 2021.  

1HFY21 Financial Highlights: CBR has registered a decline in revenue to $17.24mn in 1HFY21 against $20.07mn in 1HFY20 due to disruption in the business caused by Covid-19 situation. CBR has witnessed a decline in number of wheels sold by 5.4% during 1HFY21. The company has incurred a loss of $14.79mn in 1HFY21. It has seen a decline in cash balance to $15.40mn as on 31 December 2020 against $33.86mn as on 30 June 2020.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: The company holds interest-bearing liabilities. Therefore, any severe changes in interest rates may impact the financials of the company. In addition, the company is exposed to foreign exchange prices. Therefore, any adverse changes in foreign exchange prices may result in financial losses for the company.  

Outlook:  CBR has made progress towards commercialsation of new Fascia technology. The technology improves the conversion of moulded wheels to sold wheels, resulting in lower labour cost and better quality. The company has increased its production capacity up to 60k wheels per annum for high pressure moulding equipment capacity and 20k for low pressure moulding equipment capacity. CBR is focused on investments in research & development to improve its product technology. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

 Source: 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 CBR gave a return of ~-7.49% in the last one month and a return of ~-52.80% in the last three months. The current market capitalisation of CBR stands at ~$236.66mn as of 25 June 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$1.065-~$3.048. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in % terms). We believe that the company can trade at a slight discount as compared to its peer median, considering the company has posted a decline in revenue and incurred a loss in 1HFY21 and a decline in its cash balance as on 31 December 2020. For this purpose, we have taken peers PWR Holdings Ltd (ASX: PWH), ARB Corp Ltd (ASX: ARB), GUD Holdings Ltd (ASX: GUD). Considering the company is launching its carbon fire wheels to be presented with Ferrari 296 GTB, introducing Fascia technology for better productivity and cost optimisation, current trading levels, valuation, and key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.115, down by ~3.044% as on Jun 25, 2021.

CBR 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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