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