ARB Corporation Limited

ARB Details

Business Update: ARB Corporation Limited (ASX: ARB) is engaged in designing, manufacturing, distribution, and sale of motor vehicle accessories and light metal engineering works. The market capitalization of the company as of 28 May 2021 stood at ~$3.46 billion. As per the release dated 3 May 2021, the company reported that ARB branded off-road accessories for Ranger and Everest vehicles are planned to be sold as Ford licensed accessories. This will be done through the participation of Ford dealers in Australia with the company from the second half of 2021. Further, the company mentioned that other selected Ford markets to follow this engagement soon. Importantly, on 3 March 2021, the company announced the acquisition of Auto Styling Truckman Group Limited, which is the leading manufacturer and distributor of utility accessories in the UK, mainly focused on the rear of vehicle products such as canopies (hard tops), bed liners and general utility vehicle products.

H1FY21 Result Update: Sales for the period increased by 21.6% YoY to $284 million led by growth achieved across all regions of the business. Australian aftermarket sales grew by 14.0% and export sales increased 36.7% that represents more than a third of the company’s total sales. Further, achieved a profit after tax of $54.0 million, up 113.5% YoY. Moreover, the company declared an interim fully franked dividend of 29.0 cps compared with 18.5 cps fully franked last year. The interim dividend payout ratio of 43% is well lower than ARB’s historical payout ratio in the range of 53%-58% over the last five years.

Key Data (Source: Company Reports) 

Outlook: The company continues a positive short-term outlook driven by a strong customer order book and focused growth in new car sales in Australia seen in the past few months. Further, in the longer term, ARB remains positive with strategic growth plans in place, both in Australia as well as in export markets, including new products and geographic expansion. Driven by a strong brand presence around the world, a very capable leadership team, and staff members, a stable balance sheet, and growth strategies in place, the company is well-positioned to achieve ongoing success.

Key Risks: The company is exposed to general economic risks posed by the Australian and international economies, which may impact general or local downturns in consumer confidence and demand in the automotive industry. Further, ARB is exposed to foreign exchange rate volatility while dealings with several countries.

Valuation Methodology: Price/Earnings Per Share Based Relative Valuation (Illustrative)

Stock Recommendation: The stock posted positive 6-months and 1-year returns of ~48.86% and ~+51.74%, respectively. It is currently trading above the average 52-week low price of $16.470 and the 52-week high price of $42.780. We have valued the stock using the P/E multiple based illustrative relative valuation method and target price with a correction of low double-digit (in percentage terms). We believe that the stock might trade at a slight discount as compared to its peer median P/E (NTM trading multiple), considering the impact of global supply chain issues that is expected to continue for foreseeable future. For this purpose, we have taken peers such as City Chic Collective Ltd (ASX: CCX), Lovisa Holdings Ltd (ASX: LOV), Breville Group Ltd (ASX: BRG), to name a few. Considering the key investment risks in retailing, valuation, and current trading levels, we suggest investors to book profit and wait for a better entry level. Hence, we give a “Sell” recommendation on the stock at the current market price of $42.350, down 0.236% on 03 June 2021.

Daily Technical Price 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.

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