Shares in GUD Holdings (GUD) rose by close to 7% at one stage yesterday after investors concluded the company’s December 31 half year results were a bit better than expected and contained no unwelcome surprises, especially from its troubles Oates and Dexion divisions.
In fact the news from both yesterday showed an improvement, and GUD management made it clear that Dexion could be sold if the deal was right.
Interim dividend was boosted one cent or 5% to 21 cents a share fully franked as the company maintained its full year guidance for of around $85 million for underlying earnings before interest and tax.
As a result the shares closed up 3.8% at $10.08.
The takeaway from yesterday’s report and analysts briefing is that the company is now looking to concentrate on its well performed automotive business.
CEO Jonathan Ling said in yesterday’s statement that the company “is anticipating an improvement in trading performance in the second half, which will be underpinned by continued strong profit growth from the automotive business, including a full half’s contribution from Griffiths Equipment in New Zealand”.
“We also expect financial performance at Davey to benefit from increased sales coming from customer gains in new Australian distribution channels and an improvement in New Zealand, following the recent management change in that business.”
“As noted, Oates is expecting profit growth from the recovery in the hardware sector, an improved currency position and further overhead cost savings. The recent trajectory of improvement in Dexion is expected to continue throughout the second half”, he said.
“These factors give us confidence in reaffirming the guidance provided at the Annual General Meeting for a full year underlying EBIT (Earnings Before Interest and Tax)of around $85 million”, Mr Ling concluded.
Statutory net profit after tax, for the December 31 half year was $17.7 million, up from $1.7 million in the previous corresponding period (when earnings were depressed by losses and write down in Dexion in particular.
Underlying after tax net profit was $24.7 million, up 26% on the number previously reported for the same period last year. The 2017 first half result includes the sale of the Sunbeam and Lock Focus businesses.
Underlying after tax net profit of $24.7 million was up 8% on the same period last year on a like-for-like basis.
Based on last year’s reported result, revenue eased to $291 million, due to the divestments. But on a continuing businesses basis. it improved, thanks to solid growth of 10% was achieved in the company’s Automotive division, which was offset by declines in Davey, Dexion and Oates.
Underlying EBIT compared to last year’s reported result, increased 5% to $39.1 million with Automotive contributing a 10% uplift and Dexion reporting a $1.9 million improvement, although it remains in a minor loss position. Davey and Oates both reported lower EBIT results compared with the same time last year.
Automotive, which includes Ryco oil, air and fuel filters and Narva accessories, reported earnings of $35.9 million.
Mr Ling said the auto division was expected to grow its market in the second half of the year and the company expects to announce one or two small acquisitions in the sector before year’s end.
“In terms of acquisition, at the moment our total focus is on automotive,” he told analysts. The result included a pre-tax loss of $8.7 million classified as significant items, which consisted of a $2.5 million restructuring charge in Dexion and $6.1 million of losses on the sale of Sunbeam and Lock Focus.
Net debt fell $163 million from $191 million in the previous corresponding period. Operating cash flow of $15 million was $4 million lower than the previous corresponding period due to increased tax payments.
“The performance of our automotive business remains the highlight of our financial results, with double digit growth in both revenue and EBIT reflecting the favourable industry dynamics coupled with substantial internal programs centred on new product introductions and securing new customers,” Mr Ling said.
“This six months has been an active one for the group in relation to portfolio-shaping activities. On 1st July 2016 we divested the remaining stakes in the Sunbeam joint ventures. In December we sold the Lock Focus security products business and in October we acquired Brown & Watson’s distributor in New Zealand, Griffiths Equipment,” he said.
“The result from the divestment activities was a net cash inflow of $37.7 million. We spent just over $7.3 million on the Griffiths Equipment acquisition and paid out $20 million for the earn-out on the FY16 acquisition of Brown & Watson. These activities are consistent with our stated objective of owning market leading businesses that are scalable and have strong competitive positions in growth sectors,” Mr Ling said.
“Our turnaround activities in Dexion remain on-going and have resulted in the business trading at near break-even levels in recent months. Oates and Davey experienced difficult trading environments and a performance uplift is expected in the second half.”