ARB Corp
Recommendation
At the start of the half-year being reviewed, supply of new four-wheel drive vehicles to the Australian market was still depressed after the Japanese tsunami. A few months later, floods in Thailand caused havoc in the nation that supplies more than 80% of Australia’s 4WD utility vehicles. Less new vehicle sales meant less opportunity for ARB Corporation to sell its wares in the aftermarket.
Half-year to 31 December | 2011 | 2010 | Change (%) |
---|---|---|---|
Sales ($m) | 132.1 | 129.2 | 2.7 |
Net profit ($m) | 18.3 | 18.0 | 1.6 |
Earnings per share (cents) | 25.2 | 24.8 | 1.6 |
Interim dividend (cents) | 11.0 | 10.0 | 10.0 |
Franking (%) | 100 | 100 | |
Considering this, a 2.3% lift in sales revenue, to $132.1m, was a handy result for the half-year to 31 December 2011. Net profit after tax rose 1.6% to $18.3m, and directors declared a fully franked interim dividend of 11 cents, up 10% (ex date 29 Mar). At 31 December, the company sat on a net cash pile of $32.5m, or 45 cents per share—although you won’t hear any complaints about a lazy balance sheet from us.
It’ll be interesting to see whether there’s any bounce-back effect on sales when Asian vehicle supply normalises, which is already underway. But with a continued focus on research and development and an expanded ARB store network (now standing at 43 stores), management expects ‘reasonable growth’ for the full financial year. We admire this company and its management team and believe it has a bright long-term future. But we remain hesitant to pay today’s stock price, suspecting that current results are more reliant on the mining boom than most realise. With the stock price up 11% since 14 Nov 11 (Hold – $7.87), we'll happily HOLD and hope for a better buying opportunity down the track.
Note: The Growth portfolio owns shares in ARB Corporation.