Shares in consumer and industrial products supplier GUD Holdings Limited (ASX: GUD) enjoyed their best jump in two-and-a-half-months this morning as investors cheered its robust outlook and solid result as the company's efficiency program bears fruit.
The stock surged 8.5% to $9.18 in early trade after management reported a 19% increase in underlying net profit to $36.9 million and a 3% uplift in sales to $611.5 million for the year ended June 30, 2015.
Both figures were ahead of consensus forecast recorded on Bloomberg of $35.4 million and $598.9 million, respectively.
Management said there are more good things to come as it expects "a further substantial uplift in financial performance" in 2015-16 due to new product launches, further productivity gains from its cost-focused profit improvement programs and contribution from its recently acquired Brown & Watson International business (which supplies automotive products).
All its business divisions, with the exception of its locking devices business, reported improved earnings before interest and tax (EBIT) for 2014-15, with the Sunbeam home appliance division being the standout with a 383% increase to $7.3 million despite a 2% drop in sales to $114.4 million.
The dip in the top-line is due to a weak first half and management believes Sunbeam will be a key growth driver in 2015-16 with improved sales and profitability that's driven in part by new product introductions.
It is also pleasing to see GUD's problematic Dexion storage solutions division deliver a 72% jump in EBIT to $5.4 million as GUD moved manufacturing to Malaysia, although EBIT from Lock Focus fell 8% to $800,000 with management blaming delays in customer projects for the drop.
However, I don't think we will see material upgrades to consensus forecasts as analysts are already tipping a 27% increase in earnings per share on the back of a 20% improvement in revenue.
But even without big upgrades, I think there is room for GUD shares to climb another 20% before reaching fair value as I estimate the stock is trading under 12x price-earnings for 2016-17 – assuming it can maintain its earnings momentum.
The stock will appeal to income investors too as GUD is trading on a forecast yield of over 8% for 2015-16 if franking credits are included.
GUD paid a final dividend of 22 cents a share, which takes its full year dividend to 42 cents a share. This is 17% ahead of the previous year and analysts estimate that this year's dividend payment will increase by over 28%.
Shares in GUD have gained 25% in value since January.
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