Follow directors’ moves
THE DIRECTORS of ARB Holdings, the Durban-based distributor of overhead cables and transmission systems, have been quietly picking shares offered on the JSE over the past few months. The Alan Burke Trust, in particular, hasn’t hesitated to buy at between 140c and 180c/share. The current offer of a few shares at 200c is a nice opportunity for investors who like smaller market capitalisation shares.
ARB’s market value is currently R470m, while the group’s cash is somewhere in the region of R100m to R150m. Though that’s an excellent balance sheet in the tough current economic climate it’s also a lazy one that, it’s to be hoped, can in the future be used for takeovers in order to accelerate the group’s growth. In fact, Byron Nichles, formerly of Bridge Capital and a takeover specialist, was recently appointed CEO to develop such opportunities.
On the operating side it’s also going much better with ARB than with, for example, Powertech, a manufacturer of electric cables whose profit recently suffered considerably due to the rising and falling copper price.
For the six months to 28 February 2009, the group’s earnings weakened slightly to 19,23c as against 21,6c/share for the corresponding period last year. The main reason for that was the levelling off in its gross profit margins because the prices of most metals fell during the period.
However, the directors aren’t at all concerned about their prospects, partly because many of the company’s clients will benefit considerably from Eskom’s expansion programme over the next few years. And then, of course, there’s also the possibility of a takeover or two with the large amount of cash available.
It looks as if ARB will again earn about 48c/share for its full financial year to August 2009 and that a dividend of 16c/share will be declared from that. At 200c, the share is trading at a forward earnings multiple of just over four times the profit and a dividend yield of 8%. Its net tangible asset value is 180c/share. Not a bad buy for 200c.