GUD Holdings eyes further acquisitions amid Covid uncertainty

Manufacturer GUD Holdings is eyeing further acquisitions in the car parts and accessories market after reporting a 40 per cent rise in full-year profit.

Managing director Graeme Whickman said the group’s strategy of increasing inventory paid off as demand for automotive parts continued to rise, and the group planned to make more acquisitions in the coming months.

Manufacturer GUD Holdings is eyeing further acquisitions in the car parts and accessories market after pandemic-driven growth in its automotive aftermarket division spurred a 40 per cent rise in full-year profit.

However, GUD declined to provide guidance as it warned market volatility from the Covid-19 lockdowns could impact trading, with the automotive division’s performance already set to normalise as it comes off a record sales period.

It also said rising input and freight costs could necessitate more than one price increase to maintain margins.

On Wednesday, GUD said its net profit for the 2021 financial year jumped almost 40 per cent to $61m, with record underlying earnings before interest and tax (EBIT) of $101.2m.

The company received $2.8m in JobKeeper wage subsidies through the year, but said the benefit was “more than offset” by employee financial support programs and increased operating costs.

It declared a fully franked final dividend of 32c a share, bringing the full year payout to 57c – slightly above the company’s pre-Covid FY19 payout.

Investors reacted negatively to the uncertainty portrayed in the results, with the shares closing at $11.70, down 3.3 per cent.

The automotive division – which contains brands such as Ryco oil and air filters, AA Gaskets and Brown & Watson – reported revenue growth of 34.1 per cent to $443.5m as a Covid-inspired boom in demand for car maintenance and repairs that begun last year showed no sign of letting up.

GUD Holdings managing director Graeme Whickman. Picture: AAP

Automotive underlying EBIT lifted 25.8 per cent to $101.9m, which GUD said reflected organic growth and the contribution of newly-acquired Australian Clutch Services and AMA Group’s automotive components and accessories division.

Managing director Graeme Whickman said the strategy of increasing inventory paid off as demand for automotive parts continued to rise, and the group planned to make more acquisitions in the coming months.

“Our desire and capacity to pursue automotive aftermarket acquisitions has not altered and the pipeline of opportunities remains attractive.”

Mr Whickman told investors on an earnings call that he was looking at “bolt-on” acquisitions with revenue of $25m-$50m, although he would be open to acquiring a “game changer” if one came along.

“It’s fair to say that there’s probably more bolt on acquisition opportunities than there are game changes,” he said.

Mr Whickman said recent lockdowns have increased trading volatility and that the automotive division’s performance might decline as it cycles out of record sales growth.

“Volatile trading conditions returned in July and have continued into August 2021,” he said.

“Looking through the lockdowns, and as we cycle a record sales performance in the prior year, our expectation is that automotive organic growth will moderate and normalise over time.”

The impact of Covid-19 has continued to impact the water filtration and treatment business, Davey Water Products.

Although its revenue lifted almost 6 per cent to $113.5m, a collapse in demand from Davey’s export markets in the Pacific and Indian Ocean regions and production delays in Victoria saw underlying EBIT almost halve to $4.8m.

Additionally, operating costs were further increased by Covid-19 manufacturing compliance, elevated sea freight costs, and the rising prices of raw materials, which is also impacting the automotive business.

Mr Whickman told investors that a general price increase across all products has been announced for the 2022 financial year, but it may be followed by another as well as other “margin management actions.”

“Who knows how things will play out this year,” he said.