ARB Corporation Limited

ARB Details

Business Update: ARB Corporation Limited (ASX: ARB) designs, manufactures, distributes and sells motor vehicle accessories and light metal engineering works. As on 4 December 2020, the company’s market capitalisation stood at ~$2.3 billion. During 1QFY21, the Group saw good growth in export markets, while domestic Australian sales growth was moderate as OEM sales decreased compared with the same period of the previous year.

FY20 Financial Update: The company reported revenue growth of 4.6% to $466.9 million in FY20 from $446.5 million in FY19. Net profit also saw a marginal growth of 0.3% to $57.3 million from $57.1 million, in the same period. ARB paid a dividend of 39.5 cents per share fully franked for the financial year ended 30 June 2020. The ROE of the company is decent at 15.9% in FY20 when compared with the industry median of 13.6%.

FY20 Financial Results (Source: Company Reports)

Outlook: Despite the COVID-19 impact on the business environment, ARB reported unaudited sales growth of 17.7% for 1QFY21 compared with the previous comparable period. The profit before tax for the quarter stood at $29.7 million during the period. According to the company, the growth can be attributed to the demand created during the lockdown period and the increased trend towards local touring. It expects the trend to continue further, with the government providing stimulus for consumer spending.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: According to ARB, its OEM order book has been increasing and export sales are expected to remain strong. With decent financial performance and order book, it is expected that sales will improve further. As per ASX, the stock of ARB gave a return of 10.92% in the past three months and a negative return of 8.88% in the past one month. As per ASX, the stock of ARB is trading above its average 52 weeks’ trading range of $10.4-$33.83. On a technical front, the stock of ARB has a support level of $27.537 and a resistance level of $32.854. We have valued the stock using a price to earnings multiple based illustrative relative valuation method and have arrived at a target price with limited upside (in % terms). For the purpose, we have taken peers such as GUD Holdings Limited (ASX: GUD), Bapcor Limited (ASX: BAP), Austral Limited (ASX: ASB), to name a few. Considering the current trading levels, limited upside potential, decent financial performance but uncertain near-term economic outlook amid Covid-19, we give an ‘Expensive’ rating on the stock at the current market price of $29.230, up by 2.741% as on December 04, 2020.

ARB Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Kogan.com Limited

KGN Details

Accelerating Growth Through Acquisitions: Kogan.com Limited (ASX: KGN) operates a portfolio of retail and service businesses that include Kongan Retail, Kongan Marketplace, Kongan Mobile, to name a few. It earns revenues through the products sold under Kogan.com’s exclusive brands, as well as third-party brands. As on 4 December 2020, the market capitalisation of the company stood at ~$1.83 billion. In a recent development, Kogan.com acquired leading New Zealand online retailer Mighty Ape, and hopes to accelerate growth in the region by offering improved customer offerings and superior infrastructure.

Financial Update: The company delivered a decent financial performance in FY20. Revenues went up by 39.3% to $768.9 million in FY20, from $551.8 million in FY19. Net profit also went up by 55.9% in the same period to $26.8 million. The performance can be attributed to improving operating leverage over the years. KGN reported a gross margin of 25.4% in FY20, up from 20.7% in the previous year.

FY20 Financial Results Highlights (Source: Company Reports)

Outlook: The company has continued to deliver decent results despite the challenges caused by drought, bushfires and COVID-19 pandemic. As per the company, one in eight Australian adults had purchased goods from Kogan.com over the past twelve months. KGN expects the trend to follow as the retail industry gradually evolves from traditional brick and mortar stores to digital platforms like Kogan.com.

Valuation Methodology:  EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: KGN had reported healthy results in the past year and expects to deliver similar performance, going forward. Notwithstanding COVID-19 disruption, it reported revenue growth of 39.3% and EPS growth of 61.1% in FY20. As per ASX, the stock of KGN gave a negative return of 10.04% in the past three months and a negative return of 19.46% in the past one month. As per ASX, the stock of KGN is trading above its average 52 weeks’ trading range of $3.45-$25.57. On a technical analysis front, the stock of KGN has a support level of ~$15.356 and a resistance level of ~$20.394. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and have arrived at a target price with an upside of lower double-digit (in % terms). For the purpose, we have taken peers such as Redbubble Limited (ASX: RBL), Temple & Webster Group Limited (ASX: TPW) and Harvey Norman Holdings Limited (ASX: HVN). Considering the current trading levels, decent financial performance, superior business model, and valuation, we recommend a ‘Hold’ rating on the stock at the current market price of $17.38, up by 0.172% as on December 04, 2020.

KGN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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