GUD Holdings Limited

GUD Details

Change in Substantial Holdings: GUD Holdings Limited (ASX: GUD) 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. On 31 January 2022, one of the company’s substantial shareholders, Aware Super Pty Ltd, reduced its holding in the company from 8.93% to 7.92%.

Completed Acquisition of AutoPacific Group: On 4^th Jan 2022, the company announced that it has completed the acquisition of AutoPacific Group (APG). It is expected that this acquisition will expand GUD’s existing 4WD and Commercial Vehicle businesses with complementary products, customers, and capabilities.

Key Takeaways from FY21 Results:

• 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.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The uncertainty surrounding the COVID-19 pandemic and its impact on export markets is a key risk for the company. 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. For FY22, the company expects its EBITA to be in the range of $112 million - $116 million, excluding any contribution from Vision X and APG.

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 has provided a return of ~7.41% in the last one month and is currently trading higher than the average 52-week price level band of $9.608 -$13.274. On a technical analysis front, the stock of GUD has a support level of ~$11.55 and a resistance level of ~$13.24. The stock has been valued using an EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price with a correction of high single-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 decent return in the last one-month, current trading level, indicative downside in the valuation, and uncertainty surrounding the COVID-19 pandemic, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $12.475, as on 31 January 2022, 1:30 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.

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