Tag Archives: electrical

ARB Holdings – FY 17 Results – Resilient Group

Share Code: ARH – Market Cap: R1.4bn – PE: 9.5x – DY: 3.4%

Download the full FY 17 results note here

FY 17 – Meeting Our Expectations Despite Recession

  • ARB Holdings maintained its revenue during a tough period that included political upheaval in South Africa, SOE paralysis, sour consumer sentiment, a sovereign downgrade and a technical recession (not officially over at the date of publishing).
  • The Group reported +4% y/y growth in HEPS to 61.9cps (FY 16: 59.7cps), beating our previous forecast of 61.4cps.
  • The Group continued to generate strong cash flow with well-managed working capital whilst adding to its store and product footprint.
  • Management remains committed to the organic and acquisitive growth of existing operations.

Our Thoughts: Resilience & Upside

  • Solid results year-after-year continue to build the Group’s track record for resilience while management put in place longer-term initiatives for growth that looks
  • We do note the various changing dynamics in the cabling supply market as a risk while the currently exercisable put option by Eurolux is actually a good opportunity (in our opinion).

Forecast, Valuation & Implied Return: Still Undervalued

  • We raise our estimated fair value for ARH to 687ps (previously: 664cps), which puts the stock on an implied Price Earnings (PE) of 11.1x.
  • In our opinion, this PE does not appear unreasonable against either ARH’s own history or the various comparatives in the market.
  • Rolling our fair value forward at our CoE we arrive at a 12m TP of 809cps (previous 12m TP: 779cps).
  • A 12m TP of 809cps places the share on a comfortable Exit PE of 12.9x.
  • Our 12m TP implies a return of c.37%.

Download the full FY 17 results note here

See our methodology here and note our disclaimer here.

ARB Holdings – H1:17 Results – Quietly Growing

Share Code: ARH – Market Cap: R1.5bn – PE: 10.6x – DY: 3.0%

Download the full ARB Holdings_H1:17_Results Note

H1:17 – Steady Does It…

  • ARB Holding’s revenue rose by 3% to R1.27bn (H1:16 – R1.23bn) with Lighting leading the growth while soft municipal spend dampening Electrical’s contribution during the period.
  • HEPS rose 1% to 28.07cps (H1:16 – 27.79cps) while cash flow generation remained good and the balance sheet ungeared with R175m of net cash on hand.
  • Although in the ARB’s results are a bit below our expectations, the Group continues to steadfastly execute their strategy of geographic, product and customer expansion with cabling dropping from >50% of the Group’s turnover seven years ago to c.37% of it in these results.

Our Thoughts: Stagnation in the Base, Upside in the Future

  • While we may be premature in this call, we believe that we are currently in the trough in both South Africa (2016/17) and in ARB’s market (FY 17E and, perhaps, FY 18E).
  • SA’s Leading Indicator and as well as many global indicators everywhere are, at worst, not falling anymore and, at best, starting to rise.
  • That said, we do not expect a sudden recovery and would not be surprised if this trough stretched out (i.e. flat growth) into 2018.

Forecast, Valuation & Implied Return: Attractive Valuation

  • We lift our fair value for ARH to 664ps (previously: 650cps) on an implied Price Earnings (PE) of 11.1x. This PE does not appear unreasonable against either ARH’s own history or the various comparatives in the market.
  • Rolling this fair value forward at our CoE we arrive at a 12m TP of 779cps (previous 12m TP: 762cps), which places the share on a comfortable Exit PE of 11.4x.
    This 12m TP also implies a reasonably attractive return of c.23%.

Download the full ARB Holdings_H1:17_Results Note

See our methodology here and note our disclaimer here.