ARB Corporation Limited (ASX: ARB)
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.
H1FY22 Financial and Business Update – On 14 April 2022, ARB notified the dividend distribution plan with a total of $0.390/share. In H1FY22, ARB embarked upon an NPAT growth of 27.6% and sales revenue growth of 26.5%. The company was supported by solid customer demand and decent top-line growth. Net cash provided by operating activities stood at $28.6 million, primarily driven by PAT of $68.9 million, offset by increased inventory holdings of $40.5 million. The company retained a cash balance of $58.3 million as of 31 December 2021. The company maintains a positive outlook based on improved inventory levels, a strong customer order book, and new products yet to float in the market.
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 a positive return of ~7.296% in the past year. The stock is currently trading lower than the 52-weeks’ average price level band of $36.200 - $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 high single-digit (in percentage terms). Considering the strong consumer demand, the company might trade at a slight premium to its peers’ EV/EBITDA multiple average. For valuation, few peers like Eagers Automotive Ltd (ASX: APE), Pwr Holdings Ltd (ASX: PWH), and Peter Warren Automotive Holdings Ltd (ASX: PWR) have been considered. Given the decent fundamental run, positive outlook, solid customer demand, upside indicated by valuation, and current trading levels, we give a “Hold” recommendation on the stock at the closing market price of $40.580, down by ~0.417%, as of 22 April 2022.
Technical Analysis: After getting significant amount of correction in ARB prices from higher levels, prices broke the downward sloping trend line by upside in April 2022. Prices are also taking support of 21-period SMA on a monthly chart that also support our hold stance in the stock. Last candlestick dozi candlestick (bullish) pattern also indicates that the stock is likely to move up in the coming period. RSI (14-period) has also moved up from oversold region to ~50.83 level that indicates prices are getting bullish momentum. Immediate support levels are AUD 38.22 and AUD 33.01 while immediate resistance levels are AUD 43.19 and AUD 46.19.
Daily Technical Chart – ARB
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 for upside potential, risks, holding duration, and previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.
Resistance: A level where the stock prices tend to find resistance when they are rising, and the uptrend may pause due to profit booking or selling interest.
The Green colour line reflects the 21-period moving average. SMA helps to identify existing price trends. If the prices are trading above the 21-period, then it shows prices are currently trading in a bullish trend (Vice – Versa).
The Blue colour line reflects the 50-period moving average. SMA helps to identify existing price trends. If the prices are trading above the 50-period, then it shows prices are currently trading in a bullish trend (Vice – Versa).
The Yellow colour line represents the Trendline.
The Purple colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period), which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status, while a reading of 30 or below suggests an oversold status.
Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.
Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.
There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.
You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.
The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.
Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.
Please also read our Terms & Conditions and Financial Services Guide for further information.
On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.
Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.