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GUD - GUD Holdings

Dona Ferentes

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GUD have a 'deep dive' look at their businesses, a 124 page investor update from last week. Their positioning has to account for fundamental change in vehicle markets.

GUD is looking for a bigger share of the more complex car parts and accessories market for electric vehicles which is projected to be worth $1 billion by 2030 in Australasia, up from just $50 million now.

A business called Innovative Mechatronics Group, acquired by GUD in 2017, is at the centre of the push to expand in providing parts and services to the electric vehicle market.

The electric vehicle mechatronics business, known as IM Group, is positioned strongly to take advantage of what GUD expects will be high double digit, year on year growth in demand for electric vehicle parts and accessories, which are more complex than those for traditional internal combustion engines.

IM Group CEO Gino Ricciuti said in his investor presentation that GUD aimed to scale and rapidly expand the electronics repair and re-manufacturing operations. Mechatronics is where mechanics and electronics intersect. "Electric vehicles have more and more complex electronics than equivalent internal combustion engine cars", he said.

He said genuine replacement batteries for Hybrid Electric Vehicles are expensive, and sit at about 25 per cent of the entire value of a vehicle at the time of failure
 

Dona Ferentes

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GUD still motoring along. It seems to have survived the recalibration announced last May, with that Update. The market cap is about $1.15billion
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The dividend appears sustainable and is yielding 5.5% ff. Current PE is close to 10 ; implication is that it is a value stock, without too many growth prospects. At the last AGM, this was addressed:
"Investment in product development has long been a focus of GUD and is proving beneficial to both short-
and long-term outcomes. Today, multiple brands enjoy high single digit revenue contribution from products
launched in the past 12 months. Strong new product development pipelines are in place to support sales
through FY23 and beyond. Several brands experienced early signs of success in international markets, on

which we plan to build in FY23".

Below, an analyst has offered up a truncated version of their look under the bonnet. But is there an element of risk in an evolving market, if and when there is a transition to EVs? There are plenty of competitors in the accessories sector:


"GUD has made a series of acquisitions over recent years in order to diversify its earnings. This makes it more resilient, while providing a potential growth driver for earnings.

"Historically GUD’s focus was the ANZ automotive aftermarket, through brands such as Ryco filters and DBA brakes. This division is relatively defensive given the wear and tear nature of demand for its products, and generates significant cash, however it has limited growth potential.

"In late CY2021 GUD acquired Auto Pacific Group, which owns a range of SUV towbar, trailering and functional accessories. This was the most significant of several acquisitions targeted at building a portfolio of well-established brands in the SUV accessories market. In the months following this acquisition, Covid-related supply chain disruptions led GUD to miss its earnings targets, despite a record level of SUV customer orders in the Australian market.

"We see this setback as temporary, with GUD well placed for the future with a much more diverse business than in the past. We are attracted to GUD because of its:

  1. Good growth prospects. The Covid supply chain issues are slowly abating: December 2022 new car imports were up 12% on December 2021. This should see a return to growth for GUD’s accessories business over time as these vehicles are delivered into the market.
  2. Pricing power. GUD has had good success in the past in raising prices to mitigate cost increases, given its portfolio of well-recognised brands in the aftermarket and focus on wear and tear parts for the trade, where range and service are valued.
  3. Attractive valuation. At current levels, GUD is very attractively priced at under 10 times FY2023 earnings with earnings that should grow into FY2024 as supply chains normalise and recently won contracts with major Australian car companies are fulfilled."
... this is not my type of stock; if a fund manager was to hold it, good, but I don't see it in the portfolios of any of the LICs I have.
 
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GUD profitable Dec Half and improved earnings on pcp.
Stated outlook for H2 positive.
Cum 17c dividend till late feb and looks like full year yield should be about 4.5% ff on today's improved share price.

The chart is the only reason I comment as someone mentioned GUD recently. It's a messy cyclical looking chart but does seem to have come off a long term lower trend from a low just below CV19 March 2020 level.

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All Data monthly (not showing today's rise)
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rnr

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GUD profitable Dec Half and improved earnings on pcp.
Stated outlook for H2 positive.
Cum 17c dividend till late feb and looks like full year yield should be about 4.5% ff on today's improved share price.

The chart is the only reason I comment as someone mentioned GUD recently. It's a messy cyclical looking chart but does seem to have come off a long term lower trend from a low just below CV19 March 2020 level.

Not Held
Not Buying

All Data monthly (not showing today's rise)
View attachment 152997

There is also a 29 cent gap above $9.25 which doesn't show up on a monthly chart.
 
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GUD @ $9.62

In keeping with a 'back on solids' theme, GUD is my current target but I don't expect the anticipated market rout today to bring it into buying range.

I do think it is undervalued but the chart looks risky and I have a note buy a starter pack if it retreats to say $8.50.
My rough valuation fwiw is $12 based on fy22 earnings:
ROE = 9%
Book = $6
Which to me is worth ~ 2 x BV = almost $12
But prior ROEs justify 3 x BV

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The one thing about this stock that stays my hand whenever temptation beacons , ( like now ) is the almost total lack of interest from the Instos .
Surely there must be a smidgen of growth in it , somewhere ?
Nup. Not interested . They're looking elsewhere , by the look of it.
 
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Foiled again. G Canavan of Fat Tail late today released a buy recco for GUD.
Based on the after market in car parts to remain resilient for Austraiia's ageing car fleet (av 10.5 years)
The other big part of business, expanded by recent APG acquisition, is addressing new vehicle and trailering accessories. This segment should recover when supply of new vehicles rebounds.

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Put a bid in today for a starter pack @ 9.42
Half filled.
Got sick of waiting. Still think lower is a risk.
 
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Decisively broke resistance/support at $9 today and closed on its low.
Watching next few days in case there's a 'spring' back which would be bullish but more likely I would think is a downleg with my personal targets being anything from 8.50 to 7.50.
Currently expecting to add another 500 shares at some point.
The weekly chart (not shown) shows bearish crosses in the MACD and RSI

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Dona Ferentes

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Put a bid in today for a starter pack @ 9.42.
Got sick of waiting. Still think lower is a risk.
...And came to pass, with the drop, closing on 8, but now it's climbing again.
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The small caps manager mentioned earlier, Simon Conn, raises it as one of his 3 tips, today. Based on moving into the 4WD sector and trading at half the 'market darling' ARB.
 
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closing on 8, but now it's climbing again.
As is so often the case I didn't walk the talk and failed to add at my target. Too influenced by price downturn - not a natural contrarian. Didn't help that Greg Canavan keyed down his buy recc to a hold.

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Dona Ferentes

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now a pure play . ...

GUD Holdings has signed a sale and purchase agreement with Waterco to divest Davey Water Products for a total enterprise value of $64.9 million.

GUD said the divestiture signifies the group’s exit from the water sector and crystallises the company’s ambition to be a pure play automotive business.

The net cash proceeds are expected to be around $56 million. These proceeds will be used to further pay down debt
.
 
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At the level of the previous high.
Reports full year next week Aug 15.
Pity to lose Davey pumps business. We used their pumps for the pool. Aussie business.

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GUD @ 11.35 intraday, up 11%
Gap up breakout above previous medium term high.

Can't digest the full year report now out - too complicated with the APG acquisition factored in and metrics like 'basic' eps and 'adjusted' eps. Picked up that there was better 'cash conversion' across the group with working capital (inventory) down. Still dealing with slow supply of new vehicles, expected to resolve late FY24.
Final dividend 22c making full year div 39c, same as last year.
I got a vibe of steady for the outlook with modest improvement expected, so that's quite ok coming with a 4% franked yield.

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