ARB hit by mining slowdown
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Shares in ARB Corporation have fallen about 6% since the company’s warning at last week’s AGM that first-quarter profits would be ‘as much as 10%’ below last year’s levels.
The original equipment manufacturer (OEM) sales channel, through which the company sells its products to OEMs (mostly in Australia) for inclusion in new vehicles and which is most sensitive to demand from the mining sector, saw first quarter sales halve.
Sales growth to the Australian aftermarket also slowed slightly, ‘primarily in the mining-focused states of Western Australia and Queensland’.
That’s the bad news. The good news is that despite the slowdown, Australian aftermarket sales still rose 5%, and exports rose almost 20% thanks in part to the lower Australian dollar. These sales attract higher margins, so it’s good to see their relative resilience – although we’d expect further weakness in the mining and rural sectors to make life more difficult.
Australian aftermarket sales now account for 72% of the total and exports 22%, leaving just 6% for OEM. So the current weakness is at least having (much) the most damaging effect on the least attractive and smallest part of the company.
Even so, the price-earnings multiple of about 20 times 2013 earnings leaves little room for error given the headwinds.
The stock is down 10% since ARB Corp: Result 2013 (Hold – $12.74) and 15% since our Sell recommendation on 21 May 13 (Sell – $13.49). HOLD.
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