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