Share Code: ARH – Market Cap: R1.8bn – PE: 9.3x – DY: 4.3%
H1:22 – July Riots, Omicron 4th Wave & Fading DIY Spend
- ARB Holdings’ H1:22 results reflected a tough, chaotic trading period where riots in July and the Omicron 4th Wave all hit the Group’s operations while supply chains remained unpredictable and inflation pressures began to materialize.
- The Group’s revenue rose 7.5% y/y, though this was driven by the Electrical Division’s good performance. The Lighting Division saw a contraction over this period as the July riots disrupted many of its customers, discretionary retail spending faded off the high DIY-led base, and supply chains put pressure on in-house logistics.
- Headline Earnings Per Share (HEPS) slipped somewhat to 39.1cps (H1:21 – 41.1cps), though backed by good cash generation and the Group’s normal bulletproof balance sheet.
- Per Group policy, management has not declared an interim dividend (only a final dividend is normally declared).
- Finally, during the period, the Group acquired the 25%-minority in CraigCor and secured a replacement supplier of switchgear, TosunLux, that should contribute positively to the Group going forward.
Our Thoughts: Offer to Minorities Key Short-term Event
- More pertinent to the Group’s short-term future, Masimong Electrical made an 800cps cash offer to ARB minorities with a proposed delisting of the Group.
- Refer to our previous note for more detail as to this offer – Offer to Minorities & Proposed Delisting.
Forecast, Valuation & Implied Return: Based on Offer to Minorities
- We see the 12m TP as 800cps (previously: 766cps) and have derived it from the existing cash offer to minorities of 800cps.
- This implies that there remains c.5% return at the current share price versus this offer.
- Using the 12m TP and assuming the deal takes approximately four months for funds to flow, we see fair value as 775cps (previously: 654cps) based on the time value of money and the South African 10-year bond yield.