{"id":238,"date":"2020-09-07T06:03:43","date_gmt":"2020-09-07T06:03:43","guid":{"rendered":"http:\/\/bluegemresearch.co.za\/?p=238"},"modified":"2020-09-07T06:03:45","modified_gmt":"2020-09-07T06:03:45","slug":"arb-holdings-fy-20-battening-down-the-hatches","status":"publish","type":"post","link":"https:\/\/v7l6z8c7j6p.c.updraftclone.com\/?p=238","title":{"rendered":"ARB Holdings \u2013 FY 20 \u2013 Battening Down the Hatches"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><em>Share Code: ARH \u2013 Market Cap: R0.8bn \u2013 PE: 10.7x \u2013 DY: 0.0%<\/em><\/p>\n\n\n\n<div class=\"wp-block-file\"><a href=\"http:\/\/v7l6z8c7j6p.c.updraftclone.com\/wp-content\/uploads\/2020\/09\/ARB-Holdings_FY_20_Results-Note.pdf\">ARB-Holdings_- FY 20_Results Note<\/a><a href=\"http:\/\/v7l6z8c7j6p.c.updraftclone.com\/wp-content\/uploads\/2020\/09\/ARB-Holdings_FY_20_Results-Note.pdf\" class=\"wp-block-file__button\" download>Download<\/a><\/div>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>FY 20 \u2013 Winning Amidst A Pandemic<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>During a period deeply marked by the COVID-19-induced lockdown and a global recession, ARB\u2019s FY 20 numbers are not particularly reflective of much other than its environment.<\/li><li>Revenue contracted -13%, margins improved as deep cost-cutting, rationalization of operations, retrenchments and management salary sacrifices all protected the Group, &amp; a range of IFRS entries flowed through results distorting comparisons.<\/li><li>The Group ended up seeing HEPS rise +3.0% y\/y to 59.96cps (FY 19 \u2013 58.2cps), but, above all else, the Group appears to have protected its balance sheet (cash on hand of R152m), bolstered by operations generating R135m (FY 19 \u2013 R226m) cashflow.<\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Our Thoughts: Emerging Stronger<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Near-term numbers (both historic &amp; forecast) are somewhat meaningless in an environment of heightened chaos &amp; uncertainty with major global variables playing out.<\/li><li>Despite this, ARB management has done all the right things and the Group is likely to emerge from this period stronger, if not <em>absolutely<\/em> then at least <em>relatively<\/em> speaking.<\/li><li>Key variables remain, though, from the global (pandemic &amp; geopolitics) to domestic (infrastructure spend, public sector finances &amp; Eskom) that imply both up- &amp; downside risks.<\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Forecast, Valuation &amp; Implied Return: Still Underrated<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>We see fair value as 464cps (previously: 562cps) on a Price Earnings (PE) of c.7.4x. This appears reasonable against the various comparatives in the market (average: 10.3x) despite the reliability of PE as a metric declining due to the abnormality of this period and the raft of IFRS non-operational entries flowing through both ARB\u2019s &amp; the rest of the market\u2019s financial results.<\/li><li>Our implied 12m TP of 546cps (previous 12m TP: 659cps) places the share on an Exit PE of 8.8x &amp; implying a return of c.56%.<\/li><li>While \u201ccheap\u201d is not a unique domestic small cap characteristic, the profitability, cash generation &amp; robust balance sheet of ARB make it one of the higher-<em>quality<\/em> stocks in this universe.<\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Refer to our original <a href=\"https:\/\/v7l6z8c7j6p.c.updraftclone.com\/?p=146\">Initiation of Coverage<\/a> for more background.<\/p>\n\n\n\n<div class=\"wp-block-file\"><a href=\"http:\/\/v7l6z8c7j6p.c.updraftclone.com\/wp-content\/uploads\/2020\/09\/ARB-Holdings_FY_20_Results-Note.pdf\">ARB Holdings &#8211; FY 20 Results Note<\/a><a href=\"http:\/\/v7l6z8c7j6p.c.updraftclone.com\/wp-content\/uploads\/2020\/09\/ARB-Holdings_FY_20_Results-Note.pdf\" class=\"wp-block-file__button\" download>Download<\/a><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Share Code: ARH \u2013 Market Cap: R0.8bn \u2013 PE: 10.7x \u2013 DY: 0.0% FY 20 \u2013 Winning Amidst A Pandemic During a period deeply marked by the COVID-19-induced lockdown and a global recession, ARB\u2019s FY 20 numbers are not particularly reflective of much other than its environment. Revenue contracted -13%, margins improved as deep cost-cutting, [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[50],"tags":[52,51,53,75,57,96,97,98,15,67,20,93,48],"class_list":["post-238","post","type-post","status-publish","format-standard","hentry","category-arb-holdings-arh","tag-arb","tag-arb-holdings","tag-arh","tag-electrical","tag-electrical-wholesaling","tag-eskom","tag-free-research","tag-fy-20","tag-jse","tag-results-note","tag-small-cap","tag-stock","tag-valuation"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/v7l6z8c7j6p.c.updraftclone.com\/index.php?rest_route=\/wp\/v2\/posts\/238","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/v7l6z8c7j6p.c.updraftclone.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/v7l6z8c7j6p.c.updraftclone.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/v7l6z8c7j6p.c.updraftclone.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/v7l6z8c7j6p.c.updraftclone.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=238"}],"version-history":[{"count":1,"href":"https:\/\/v7l6z8c7j6p.c.updraftclone.com\/index.php?rest_route=\/wp\/v2\/posts\/238\/revisions"}],"predecessor-version":[{"id":240,"href":"https:\/\/v7l6z8c7j6p.c.updraftclone.com\/index.php?rest_route=\/wp\/v2\/posts\/238\/revisions\/240"}],"wp:attachment":[{"href":"https:\/\/v7l6z8c7j6p.c.updraftclone.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=238"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/v7l6z8c7j6p.c.updraftclone.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=238"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/v7l6z8c7j6p.c.updraftclone.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=238"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}