Stock of the Week GUD Holdings (GUD)


GUD Holdings (GUD) is a manufacturing and marketing company, focused on product development, manufacturing, offshore sourcing, supply chain and brand management.

GUD operates in four separate business segments: consumer products, automotive products, water products, and security products.

GUD is listed as a consumer discretionary stock in the share market.

The company is the owner of Australasia’s premier portfolio of consumer and industrial brands including Sunbeam, Davey, Ryco, Wesfil, Oates and Lock Focus.

Like its retail sector peers, GUD suffered over late 2007 to late 2008 as the global economic downturn put pressure on the retail sector.

Despite lingering challenges, GUD has not only been able to improve on a decent FY09 result in FY10 but even hit record figures, with all business segments contributing to a profit of $46.4 million.  As a result, it has been one of the hot stocks in recent months.

Armed with a healthy cash balance and benefitting from a strengthening local economy, GUD will continue its expansion and leadership in Australasian markets and is looking at sales growth in FY11.

Brand strength

GUD’s brands are all recognisable names in Australia and New Zealand. Sunbeam boasts a range of well-known small electric appliances, including the new range of “Verve” model steam irons, which were released over FY10.

Sunbeam sponsored the second series of the television show MasterChef, with substantial benefits for the Sunbeam brand, and regained its market leadership position over the year.

GUD’s Oates business has commenced diversifying supply sources to South East Asian nations and maintained leadership in the Australian cleaning products markets.

Lock Focus established new distribution arrangements over FY10 for New Zealand and Western Australia, and GUD is looking at new product programs for the business.

GUD’s Davey pumps and water products benefitted over the year from growing sales momentum in international swimming pool product markets, whilst the company finalised the integration of Goss (fuel pumps and related products) into its automotive aftermarket product division.

GUD’s Wesfil and Cooper filter products countered patchy trading conditions over the year, with GUD expanded warehousing facilities to incorporate business growth.

Retail turnaround

GUD is one of our major players in the retail industry. Its biggest customer is the everyday consumer and consequently the company benefits from upped retail spending.

Retail conditions in Australia are still volatile but looking stronger on recent upbeat local economic data.

In August, spending across Australia increased for the first time in nine months as consumer confidence marginally improved, according to the Business Sales Indicator (BSI).

Job ads are increasing as the unemployment rate is dropping – Australia’s unemployment rate dropped to 5.1% in August from 5.3% in July, topping economist expectations of a 5.2% unemployment rate.

These signs of a strengthening economy are encouraging for retail conditions going forward, as consumers are now able to spend on nonessential items.

FY10 highlights

Despite environmental challenges, GUD reported a record financial performance for FY10, following on from a strong FY09 in spite of the GFC.

In FY10, all of GUD’s business segments contributed to the improved profit result.

At the end of the financial year, GUD delivered a record set of financial results, including its highest net profit after tax, lowest year-end net debt position and a record level of operating cash flow (see below).

Underlying earnings growth was double-digit in all business, with an overall underlying earnings improvement of 18% over FY09.

One of the year’s highlights was GUD’s takeover bid for Dexion, which is expected to be completed in 1H11.

Dexion is a major participant and market leader in the industrial and commercial storage industries with operations across Australia, New Zealand, China and Malaysia.

Over the year GUD also initiated a bid for Breville Group following the company’s May 2009 purchase of 19.4% of Breville’s shares. The bid lapsed in February this year following objections from the Australian competition regulator.

GUD also made a small bolt-on acquisition via its Oates business involving a cleaning chemicals business.

Fantastic figures

In July, GUD released its FY10 results, which were impressive and included record figures for the company.

One of the many highlights of the year was a record operating cash flow of $78.2 million, up from $57.9 million in FY09.

GUD reported a 33.2% jump in full year net profit to $46.4 million, citing margin expansion and tight cost control as key factors behind the result.

Revenue climbed slightly by 1.8%, to $476.6 million, with the strongest contributor being the group’s Davey Water Products business.

GUD expects moderate sales growth in FY11 across all of its divisions, and profit margins should be maintained despite rising cost pressures from offshore suppliers.

GUD declared a final dividend of 34 cents per share, which represented a 1 cent increase from a year ago.

Outlook

GUD is the owner of Australasia’s premier portfolio of consumer and industrial brands including Sunbeam, Davey, Ryco, Wesfil, Oates and Lock Focus.

The group’s strong brand portfolio has kept GUD in good stead across 2009-2010, with all of the company’s business segments contributing to an increased profit result in FY10.

GUD is robust enough to expand at a time when most companies are forced to embrace caution. GUD’s takeover bid for Dexion is expected to be completed in 1H11 and will increase its exposure to the industrial and commercial storage industries across Australia, New Zealand, China and Malaysia.

Armed with a healthy cash balance and benefitting from a strengthening local economy, GUD will continue its expansion and leadership in Australasian markets.

The group’s Oates business has already commenced diversifying supply sources to South East Asian nations, an excellent growth region for GUD.

GUD expects moderate sales growth in FY11 across all of its divisions, though given the group’s FY10 results and an improving economic outlook, sales growth may turn out to be more than modest in the coming year.

Consequently, GUD will be one of the stocks to watch in coming months.

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