Acquisitions, Strong Core Automotive Performance Underpin GUD’s H1 Fiscal 2023

We maintain our AUD 12.00 fair value estimate for shares in GUD GUD following the release of interim fiscal 2023 results that were broadly in line with our expectations. Underlying EBITDA lifted 53% on the prior corresponding period, or pcp, to AUD 106 million. High-single-digit EBITDA growth in the core automotive business was buoyed by acquisitions—particularly 4WD and trailering business APG. We make no changes to our fiscal 2023 EBITDA forecast of AUD 229 million. Despite the 8% lift in shares, GUD continues to screen as attractive at current prices.

GUD’s core automotive business, still the majority of earnings, continued to perform strongly. Underlying EBITDA before acquisitions lifted 8%, reflecting solid wear and repair parts demand. Automotive spare parts, required for routine maintenance and repair of vehicles, are less affected by changes in discretionary income and consumer confidence, with demand growth broadly driven by the increasing pool of vehicles. There are currently about 20 million passenger vehicles in Australia, and we expect net vehicle registrations to grow at low single digits per year over the next decade. Most of the vehicle pool sits within GUD’s sweet spot. GUD principally supplies parts for vehicles more than five years old, once they’re out of manufacturer warranty. The average age of vehicles in Australia is now over 11 years and more than 15 million are older than five years.

By contrast, underlying proforma EBITDA in the APG business lifted just 1% on the pcp to AUD 30 million. GUD’s acquisition of APG in late-calendar 2021 indirectly increased GUD’s exposure to the volatile new vehicle market. Australian new car sales remain depressed as semiconductor shortages continue to ravage automakers’ ability to meet demand. APG derives the majority of sales from original equipment manufacturers, notably vehicle manufacturers. The relatively little brand equity of GUD’s private labels is a rationale behind our no-moat rating for the firm.