The backlog of new vehicle orders in Australia is over 12 months for some brands, causing a lack of aftermarket sales for GUD’s newly acquired APG. GUD has lowered its guidance for FY22f EBITA as a consequence.
Supply constraint of new vehicles is causing a traffic jam of orders across Australia. GUD’s Managing Director Graeme Whickman said that “industry commentators are reporting order backlogs well in excess of 12 months.” That is impacting on the sales of aftermarket parts such as towbars, X-bars and wheel hitches which are the bread and butter of GUD’s recently acquired AutoPacific Group (APG).
Acquired in January 2022 for $745 million, APG is the market leader in towing accessories and has strong positions in trailering and other 4WD accessories. On a pro forma basis, APG will form 30-35% of GUD’s revenue and 35-40% of EBIT. The key difference to GUD’s core business is that APG derives about 73% of its revenue from factory and dealer fitted accessories.
APG has seen a significant slowdown in OEM offtake through the latter part of April and May. Based on recent ordering patterns, Management expect the weaker trend to persist into June and July at a minimum. Ford Ranger sales, for example, are down over 12% year-to-date in May and sales of the new Toyota Landcruiser 300 are down almost 40% year-to-date in May. A further distraction is the delay of some new vehicle launch dates will also impact on demand.
APG’s run rate has been artificially detuned due to supply chain issues. A protracted recovery in vehicle deliveries is quite possible and remains a key uncertainty for the group, but it best described as deferred business rather than lost. In that sense, GUD’s earnings and valuation are only adjusted by an unknown time factor.
GUD’s core ‘legacy’ automotive aftermarket businesses are robust. GUD noted that wear and repair demand is still very good and has been aided by GUD’s strategically higher inventory position. The company noted that cost increases are being met with price increases to maintain margins. More price increases are slated for July and August.
Investment view
The Federal Chamber of Auto Industries CEO Tony Weber has been frequently pointing out the global shortage of microprocessor units and shipping delays that are plaguing the automotive industry. Mr Weber noted that: “Car makers continue to report high demand across dealer showrooms and online marketplaces.”
The Australian market is clearly not bereft of demand, and this provides a good deal of confidence that GUD can see out this period of sales funk. Customers are certainly champing at the bit to get their hands on a new ‘300 Cruiser’ or ‘Ranger Wildtrack’ and to quickly up-spec it with the usual accoutrements of the Australian offroad scene.
GUD has lowered its guidance for FY22f EBITA from the previous range of $155-160 million to approximately $147 million.
Currently trading on a PE ratio less than 10x FY23f consensus eps, the share price has slipped by 30% since the start of the year. The dividend yield has pushed up to over 7% and we think the stock is now looking cheap.
Risks to investment view
The volume and trajectory of vehicle sales, both new and used, across Australia is correlated with activity in GUD’s businesses. If demand for vehicle accessories changed, this would impact GUD’s earnings.
Recommendation
We have upgraded our recommendation to Buy from Hold.
