Company Overview: ARB Corporation Limited (ASX: ARB) is engaged in the business of designing, manufacturing, distributing, and sale of motor vehicle accessories & light metal engineering works. The company has an ARB store network of retail customers, ARB stockists, new vehicle dealers, and fleet operators. It was listed on ASX in 1987.
ARB Details
Material Market Updates
Historical Financial Trend:
ARB illustrated considerable sales growth in FY21 while keeping the value proposition intact. Operating revenues have been growing consistently since FY17, well reflected in bottom-line. Operating revenues grew at a 13.2% CAGR (FY17 – FY21).
Half-yearly FY21 Performance:
Top 10 Shareholders:
The top 10 shareholders together form ~36.25% of the total shareholding. Bennelong Australian Equity Partners Pty. Ltd. and Rogand Pty. Ltd. holds a maximum stake in the company at ~13.58% and ~7.15%, respectively.
Key Metrics:
ARB’s growth profile stands strong with consistent growth in revenues (5-Yr CAGR +11.8%) and gross profit (5-Yr CAGR +13.8%). The liquidity profile remains stable with a decent current ratio at 3.05x in FY21. ARB has well managed its inventory levels, aligned by product demand.
Outlook:
Key Risks:
The global supply chain has tumbled in the past few quarters, affecting the logistical factors for ARB business. Moreover, the increasing interest rates and potential labor shortages may disrupt ARB’s operating cost model.
Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation:
The stock of ARB gave an ARB return of ~-18.42% in the past year. The stock is currently trading lower/higher than the 52-weeks’ average price level band of $30.300 - $55.000. The stock has been valued using the EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Considering the rising interest rates, labor shortage, and global supply chain constraints, the company might trade at a slight discount to its peers’ EV/EBITDA multiple average. For valuation, few peers like GUD Holdings Ltd (ASX: GUD), Eagers Automotive Ltd (ASX: APE), PWR Holdings Ltd (ASX: PWH) and others have been considered. Given the favourable sales result in H1FY22, decent liquidity position, low financial leverage, favourable prospects for manufacturing activities in Australia, current trading levels, upside indicated by valuation and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the closing market price of $30.750, down by ~3.088%, as of 17 May 2022.
ARB Daily Technical Chart (Source: REFINITIV)
Note 1: The reference data in this report has been partly sourced from REFINITIV
Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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