GUD Earnings: Automotive Spare Parts Resilience Drives Strong Result

We maintain our AUD 12 fair value estimate for shares in no-moat GUD Holdings GUD with fiscal 2023 earnings. Underlying EBITA of AUD 191 million, a 27% increase on fiscal 2022, was just 3% below our forecast. Strong growth versus fiscal 2022 was driven by high-single-digit organic growth in the core automotive business, and a full year of earnings from AutoPacific Group and Vision X, both acquired in fiscal 2022. Shares in GUD appreciated materially with the earnings announcement and now trade close to fairly valued.

GUD declared a fully franked final dividend of AUD 0.22 per share, bringing the total fiscal 2023 dividend to AUD 0.39—flat on last year. The payout ratio fell to 53% of underlying earnings from 68% last year, given higher earnings. The lower payout gives flexibility for potential bolt-on acquisitions without unnecessary balance sheet risk. GUD’s primary leverage metric, net debt/adjusted EBITDA, was 2.0 in fiscal 2023, approaching management’s medium-term target of 1.6-1.9. Looking ahead, we expect GUD to raise the payout ratio to 70% in fiscal 2024 and maintain this for our explicit forecast period.

GUD’s automotive segment, which excludes AutoPacific Group, was the strongest performer. It accounted for 73% of group underlying earnings. Organic revenue growth of 9% reflects a near-equal contribution from volume and price. Inorganic revenue growth of 22% was from five months of incremental sales from Vision X. Robust sales from the core business were largely attributable to “wear and repair” demand. As a distributor of repair and maintenance products, GUD’s automotive segment benefits from an expanding and aging national vehicle fleet. To this end, structural dynamics are favorable, with data from ACA Research showing the average age of vehicles in Australia increased to 11.1 years in calendar 2022 from 10.7 five years prior. Moreover, we expect the fleet to grow at about 1%-2% annually for the next decade.