GUD Holdings Ltd (GUD)
Over the last several years, GUD Ltd has been a classic story in the reallocation of assets – from low-returning businesses to the higher-returning car parts business. Management has progressively sold off businesses, including Sunbeam small appliances, Dexion storage equipment business, Oates household cleaning products and some smaller operations.
These sales have enabled GUD to focus on the better-returning area of auto parts. Aftermarket automotive parts are an attractive business in Australia, due to the complex range of vehicles that the Australian fleet comprises. Japanese, European, Australian and US style models all frequent our roads. All these cars need parts and servicing.
The ability to stock a complete range of various parts takes expertise in sourcing, and innovation in design. GUD has progressively expanded its exposure in this stable market structure. Margins are excellent and competition is benign.
The transformation has resulted in dividends growing by 8.5% per annum over the last few years. GUD has targeted a niche area with low competition and stable client bases. The industry is characterised by service and availability, and not by price, which is favourable.
With a healthy balance sheet post the sale of Oates, and the possibility the Davey pump business could be sold to fund further acquisitions, we expect more good things from GUD.
McMillan Shakespeare (MMS)
The company has grown through two interrelated businesses over the last decade. These can broadly be categorised into remuneration services, which administers the packaging of employee salaries to include vehicles and other benefits. This is mainly undertaken for large organisations, including government, and is reliant on excellent service provision, of what can be complex employee arrangements.
The second business stems from the exposure to vehicles the company has from the first. MMS manage the whole life cycle of the vehicle, from purchase and maintenance, to final disposal of the leased vehicles. The industry is not known for overly aggressive competition, although it does flare up from time to time. Usually clients are quite sticky, and new business is sourced from companies outsourcing the function.
Over the last few years, MMS has entered the UK market in a considered fashion. The UK market is fragmented and MMS will continue to expand there. Conservative management – from having a good balance sheet, to pricing risk and growing in a manageable manner – is critical in this business, and MMS has exhibited all these qualities.
- Total number of salary packages at period end.
- Novated leases under management at year end.
Brickworks Ltd (BKW)
Brickworks has a long and impressive record of steady growth and conservative management. Growth has come off a solid balance sheet, and that has reduced risk.
BKW also has a diversified exposure to different types of businesses, which reduces the risk of the investment. As can be seen below, the company operates in the building products markets, where it has a solid share in the stable brick market. Detached housing, which drives demand in this industry, has been solid for a number of years but not excessive.
The property portfolio has arisen from the old brick plants being replaced by newer ones, leaving valuable land ready for redevelopment. A good backlog of property at low cost supports the valuation.
Finally, BKW has a cross shareholding in investment company Washington H Soul Pattinson. WHSP has a long and successful record of producing strong results over the long term. Outstanding features of the investment portfolio have been the lack of debt, a reduction in risk, a long-term record of increasing dividends, and also the patient nature of the holdings, where the company is intimately involved with the underlying investments.
BKW stands out as a solid long-term contributor to dividend growth in the Contango Income Generator Limited portfolio.
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