GUD Holdings Limited reports $43 million loss: Should you sell?

GUD Holdings Limited (ASX:GUD) reports a full year net loss after tax of $43 million. It might not be as bad as it looks, so should you invest?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The shares of GUD Holdings Limited (ASX: GUD) are likely to come into focus today after the company reported a full year net loss after tax of $43 million.

This was a result of the company taking a $75.7 million non–cash impairment at Dexion and an earn-out payment of $10.6 million associated with the acquisition of the Brown & Watson automotive business.

Key highlights include:

  • Revenue up 20% to $595.5 million
  • Net profit after tax from continuing operations down 241% to a $40.9 million loss.
  • Underlying profit from continuing operations after tax up 44% to $44.4 million.
  • 4 cents loss per share.
  • Final dividend increased 5% to 23 cents.
  • Operating cash flows up 133% to $70.2 million.

Although the headline makes for terrible reading, it was thanks to the company's solid performance and its positive outlook that it took the decision to impair its holding value by $75.7 million pre-tax. Following the impairment the holding value of Dexion now stands at $44 million and all goodwill has been written off.

Underlying net profit after tax from continuing operations increased 36% year-on-year to $44.4 million. This was achieved thanks to strong contributions from its Automotive businesses and Davey Water Products, although partially offset by a loss in its Dexion business.

Whilst management has acknowledged that there is still a lot of hard work ahead for its struggling Dexion business, it is confident signs are pointing towards a recovery. Although the business produced a disappointing loss this year, it was profitable in the final quarter. It is believed the approach of Dexion's new management team is starting to take the business in the right direction. It also revealed strategic options for Dexion are being considered.

Managing director Jonathan Ling had this to say on the results:

"The year represented one in which the portfolio structure of GUD was rebalanced with the acquisition of Brown & Watson and the sale of the interests in the Sunbeam joint ventures. We anticipate the consequences of this to be more consistent and stable revenue and profit streams, as the relative focus shifts from consumer markets to trade and industrial markets."

Outlook

The company's financial position continues to remain strong with high cash conversion and a reduced net debt position. It believes this supports further organic and acquisitive growth initiatives in the future, which is very positive in my opinion. Thanks to its strong Automotive business, management is confident underlying earnings will grow in FY 2017.

Foolish takeaway

Whilst I'm a big fan of some of GUD Holdings businesses, as a whole I'm not convinced the company makes a great investment today. I don't believe these results were anywhere near as bad as they look, but I do feel there are far better businesses such as Premier Investments Limited (ASX: PMV) and Burson Group Ltd (ASX: BAP) for investors to focus on instead.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »