ARB Corp
Recommendation
ARB Corporation has reported sales growth of 9.6% for the 9 months to the end of March, and said that its current order book is satisfactory and that it expects the final 3 months of the 2013 financial 'to remain solid' despite the mining downturn.
As we noted at the half-year result on 21 Feb 13 (Hold – $12.39), though, the shares are 'priced for near-perfection' and the market didn't like it, sending the price down around 7%.
Sales were up 16% in the Australian aftermarket business, ARB's largest division, which accounted for 69% of total sales. The increase reflected new ARB stores and the development of existing stores, new products and 'a general improvement of market share at the expense of ARB's competitors'.
Sales to the Australian original equipment market (10% of total sales), however, fell 8%, due to the slow down in the mining industry and increased competition.
Exports to the USA (10% of total sales) rose 2%, while non-USA exports (11% of total sales) fell 2%. The company said the strength of the Australian dollar was largely to blame, but it noted that this also helped to maintain margins in its Australian business (although local competitors, who tend to import all their products, benefit more).
The company also noted that it had benefited from strong growth in the mining industry over the past five years and that recent cutbacks in spending in the industry had reduced demand for its products.
ARB took the opportunity to outline its strategy for growth, which in essence is more of the same (none the worse for that). The company will continue to develop new and improved products, while expanding its local store network and extending its reach overseas.
All in all, it looks like a solid update and hardly deserving of a 7% share price fall, but that's what you get when you don't quite meet elevated expectations. The market may also have been spooked by talk of reduced demand from the mining industry.
In line with our fresh approach to recommendations, we're tweaking our price guide to Sell above $14 and Buy below $8. The maximum portfolio weighting is increased to 6%. HOLD.
Note: The model Growth Portfolio owns shares in ARB Corp.