FY 15 Results Note – Share Code: ARH – Market Cap: R1.4bn – PE: 12.0x – DY: 5.0%
FY 15: Tougher Trading Environment Than We Anticipated
- Amidst a tough domestic economy and a management transition, ARB Holdings reported flat FY 15 results with a small decline in the Electrical Division being offset by growth in the Lighting and Corporates Divisions.
- The Group reported revenue of R2.1bn (FY 14: R2.2bn), strong cash generation and flat HEPS of 50.0cps (FY 14: 50.3cps).
- These results were driven by an unexpected drop in activity and spending by Eskom (particularly in their rural electrification programme) and infrastructure-related work in a slowing, troubled domestic economy.
- The Group’s finances remain robust and management has declared a normal and a special dividend of 20.1cps (FY 14: 20.1cps) and 10cps (FY 14: 10cps) respectively, implying that the Group’s share is trading on a Dividend Yield (DY) of c.5.0%.
Our Thoughts: Quality Business, Tough Market, Acquisitive Intentions
- Given the tough environment, we see ARB Holdings’ good FY 15 results as indicative of the Group’s underlying quality.
- The macro-environment will be the biggest challenge for the Group’s short-term organic growth ambitions, but the long-term strategy of expanding the Group’s product lines, geographies and markets (both organically and acquisitively) should yield upside.
- In the short- to medium-term, though, it is likely that any major growth will be driven by acquisitive actions taken by the Group. While this is hard to forecast (and we do not even try), management have reasserted their intentions to conclude strategic and meaningful acquisitions in due course.
Forecast, Valuation & Implied Return: Comfortably Priced
- We revise our fair value to 613cps (previously 715cps) putting the share on a Price Earnings (PE) of 12.3x. This arrives at a 12m TP of 712cps (previously 836cps) on an Exit PE of 12.9x implying a 12m return of c.20% with acquisitive upside risk to these numbers
- Key risks to the Group are unchanged from our original Initiation of Coverage. In fact, the macro risks remain even more pertinent in the current environment.