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Results in: Are GUD Holdings Limited shares a buy?

In morning trade the GUD Holdings Limited (ASX: GUD) share price has fallen over 1.5% to $12.17 following the release of its half-year results.

Here are key highlights from the release:

  • Half-year revenue increased 11% on the prior corresponding period to $194.7 million.
  • Underlying profit from continuing operations after tax up 16% to $26 million.
  • Underlying earnings per share of 30 cents.
  • Operating cash flows up 37% to $20.6 million.
  • Interim fully franked dividend of 24 cents per share, up from 21 cents.
  • Outlook: Underlying EBIT for the full-year to be around $90 million. (Previous guidance: $90 million to $94 million.)

I felt this was a reasonably solid first-half result from the conglomerate and it appears to demonstrate that the offloading of its non-core businesses has been an early success.

The company’s continuing operations now include just its Automotive businesses and the Davey water pump business.

The Automotive division was the highlight of the half in my opinion, posting a 14% increase in revenue to $142.4 million and a 12% increase in earnings before interest and tax (EBIT) to $40.2 million. The increase in revenue was driven by a combination of organic growth and growth from acquisitions.

The results included one month’s contribution from the AA Gaskets business and six months from IM Group. In addition to this, its Griffiths Equipment business contributed to two month’s financial performance in the first half of FY 2017 and a full six months this year.

Its Davey division saw revenue increase 2% to $52.3 million and EBIT grow 9% to $4.7 million. A focus on improving the water pump specialist’s cost position resulted in a significant improvement in its product costs and a meaningful lift in margins.

Looking ahead, the company continues to be on the lookout for further potential acquisitions in the automotive industry. As such, I believe there’s a good chance that it could offload the Davey business in the not so distant future in order to focus purely on the automotive industry.

Should you invest?

At approximately 20x annualised earnings I’m not a buyer of GUD Holdings’ shares just yet. If it were trading at a lower multiple I would be interested, especially given the early success of its recent investments and divestments.

But for now, I would prefer to gain exposure to the retail sector through Baby Bunting Group Ltd (ASX: BBN) or Premier Investments Limited (ASX: PMV).

As well as Baby Bunting and Premier Investments, I think these growth shares could beat the market this year.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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