value investing | Blue Gem Research

Share Code: ARA – Market Cap: R604m – Discount to NAV: 24%

Q2:23 Results: Currency and Market Headwinds

Astoria reported Net Asset Value of $0.748ps (FY 22: $0.827ps) or R14.08ps (FY 22: R14.06ps) with growth in Outdoor Investment Holdings (OIH) offset by lower RACP (i.e. Goldrush) & Leatt Corp share prices. A weaker Rand offset this in the Rand-based NAV but detracted against the USD-based NAV.
Unlisted valuations remain conservative with multiples unchanged.

Commentary: Businesses Robust & Investments Degearing

Importantly—given its 48% of NAV—OIH is trading well, growing both footprint and store-level trading density.
Broadly, underlying businesses are performing &, even those facing headwinds, are trading resiliently and offer upside the moment the broader economy/ies improve.
Along with existing businesses growing their profits, other potential future fair value moves include both the Family Pet Centre (FPC) and Vehicle Care Group’s (VCG) refined business models showing success. Likewise, Trans Hex Marine’s historic cost should be fairly valued in future results.
During H1:23, Astoria paid back some of its investment-level debt (we expect this to continue). This adds to NAV & lowers financial risk while freeing capacity to regear for another acquisition (see the cautionary noted below).

Valuation, 12m TP & Implied Return: Under Cautionary…

Updating Astoria’s NAV to current prices, the share price is trading at a c.24% discount to current NAV (Previously: 34%).
If we take out our calculated “HoldCo discount” of c.14.5% (Previously: 14.0%) from this NAV, we arrive at a fair value for Astoria’s shares of c.1213cps (Previously: 1192cps) or c.11% higher than the current share price.
Rolling this fair value forward at our Cost of Equity, we arrive at a 12m TP of c.1440cps (Previously: 1422cps) that implies a potential return of c.33% from the current share price.

Note: The share is currently trading under a cautionary announcement due to a potential acquisition.

Share Code: ARH – Market Cap: R1.3bn – PE: 7.6x – DY: 3.65%

H1:18 – Operationally Robust

ARB Holdings reported revenue +5% for H1:18 and operating profit growing +3%.
The mark-to-market fair value changes in the Put Option for Eurolux distorted the IFRS numbers by 5.9cps, but excluding this effect, the Group’s HEPS would have been +13% y/y to 31.72cps (H1:17 – 28.07cps). This is materially better than our bottom-line expectations for FY 18E.
One sore point in the Group’s results was its Lighting segment where revenue slipped and profits felt pressure as consumer destocking, technology and delays combined.
Post-reporting period, the Group acquired a 60% interest in Craigcor for a maximum consideration of R30m. The business is a process automation distributor for Rockwell Automation products.

Our Thoughts: Well-positioned for an ‘SA Inc’ Recovery

While risks remain and ‘big ticket’ infrastructure spend roll-out is always lagging, ARB Holdings is extremely well to benefit from the de-risking of South Africa, the recovering sentiment and the potential recovering domestic economic activity.

Forecast, Valuation & Implied Return: Getting Exciting…

We raise our estimated fair value for ARH to 777cps (previously: 687cps), which puts the stock on an implied Price Earnings (PE) of 10.0x and implies that it is currently c.44% undervalued.
In our opinion, this 10.9x PE is reasonable when measured against either itself or comparatives.
Rolling our fair value forward at our Cost of Equity (CoE) we arrive at a 12m TP of 911cps (previous 12m TP: 809cps).
A 12m TP of 911cps places the share on a fair Exit PE of 14.5x, though we note a number of timing and environmental risks to our view.
Our 12m TP implies a return of c.69%.
Despite improving domestic sentiment, key risks to the Group are unchanged from our original Initiation of Coverage.

See our methodology here and note our disclaimer here.

Blue Gem Research