Search by ticker code:
Generic filters

Search by ticker code:
Generic filters

Search by ticker code:
Generic filters

Why GUD’s divestment is good for the GUD Holdings Limited (ASX:GUD) share price

The GUD Holdings Limited (ASX: GUD) share price might be down today, but recent news of its divestment of Davey Water could be good news for shareholders, writes Stock Doctor’s Daniel Ortisi.

In December 2021, GUD Holdings Limited (ASX: GUD) completed the acquisition of AutoPacific Group (APG) for $775 million.

GUD Holdings Ltd share price

The business performance since then has been disrupted by supply chain issues causing a reduced supply of vehicles in the country, leading APG to miss initial expectations.

Furthermore, GUD has been in an awkward strategic position retaining ownership in a water pump business it has owned since the 1990s, which was clearly out of place amongst its suite of auto-part brands.

GUD’s sale of Davey Water

On the 7th of August, GUD announced the divestment of Davey Water for $64.9 million to Waterco Limited (ASX: WAT). The transaction should settle on the 1st of September, and the funds will be diverted to pay down debt – with management targeting <2x net debt-to-earnings ratio for FY23.

While the elimination of Davey will reduce GUD’s future revenues by ~$120 million (~10% of group revenue), the overall reduction to profit/earnings is minimal at only ~3%. Preliminary FY23 numbers have not been provided by management, but the mention of a targeted leverage ratio does allude to the fact like GUD’s earnings are likely to meet analyst expectations of ~$225m in earnings before interest, tax, depreciation and amortisation (EBITDA) at its upcoming result.

Reducing debt an important step

GUD’s share price has waned since its acquisition of APG in 2021, falling from a high of $12.90. As aforementioned, this is partially due to the supply chain issues impacting the supply of vehicles in the country causing earnings estimates to miss expectations.

A secondary concern has been the significant amount of leverage on the balance sheet, with ~$474 million in net debt. As such, we believe investors should be pleased with the update providing a much-needed capital injection, particularly as maturities fall due as early as January 2024.

Source: Company presentation; author supplied.

Final thoughts on GUD shares

GUD appears to fly under the radar when compared to its listed peers Super Retail Group Ltd (ASX: SUL), ARB Corporation Ltd (ASX: ARB) and Bapcor Ltd (ASX: BAP), which all own competing brands within the automotive market.

We believe that the GUD share price may benefit from a re-rating by the market if it can prove out the earnings base of its APG acquisition, pay down debt and continue to make value-accretive acquisitions.

Our team at Stock Doctor have been providing bottom-up, high-quality equity research to self-directed Australian investors for decades and we’re offering you FREE access to our platform for 14 days.

We are currently in the trenches of reporting season and will be providing tons of content for those investors who are struggling to find opportunities in this market.

Finally, for those who like the personal touch… any RASK Media reader who creates a free trial (see below) this reporting season will get direct access to our equity research team.

In other words, get a free account and you can chat directly with me about these companies! I’d love to hear from you and talk about our detailed ASX valuation research. 

Get a FREE account simply by clicking HERE or the button below. 

Complimentary Stock Doctor membership – Lincoln Indicators

Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

At the time of publishing, the author or their clients may have a financial interest in the companies mentioned.

Powered by

Skip to content