ARB Hold­ings

Finweek English Edition - - HOUSE VIEW - By War­ren Dick

The whole­sale electr ical and light­ing provider posted mixed in­terim re­sults for the pe­riod end­ing De­cem­ber. The e ncour­ag­ing per­for­mance of the light­ing di­vi­sion − which saw rev­enue ad­vanc­ing 23% and op­er­at­ing profit 16% over the pre­vi­ous cor­re­spond­ing pe­riod − was tem­pered by the per­for­mance of t he much l arger elec­tri­cal di­vi­sion, which ac­counts for 81% of rev­enue.

The di­vi­sion’s rev­enue de­clined by nearly 10% to R890m, with the c o mpany c i t i n g a “l a c k o f retic­u­la­tion spend by Eskom and the paucity of ma­jor in­fra­struc­ture projects” as rea­sons for the decline. This saw op­er­at­ing profit in the unit fall by nearly 12%, de­spite a slight im­prove­ment in the gross mar­gin. The per­for­mance of t he t wo di­vi­sions al­most net­ted off one an­other − head­line earn­ings per share (HEPS) fell ever so slightly from 24.88c to 24.79c.

This l e aves i nvestors i n a predica­ment. At R6.10/share and f ac­tor­ing f ull- year earn­ings of R0.50 (which is the same as last year), new i nvestors would be buy­ing the com­pany on a price-toearn­ings ra­tio of 12.2 times, but which in the short term ap­pears to of­fer no growth. The com­pany also does not have a full-time CEO, with fi­nan­cial direc­tor Billy Neasham fill­ing in fol­low­ing the de­par­ture of By­ron Ni­chols in Oc­to­ber last year.

But the com­pany is in a good fi­nan­cial po­si­tion, with a strong bal­ance sheet that has no long-term in­ter­est-bear­ing debt of any kind; and R130m of cash on hand sug­gests the com­pany could well use the de­pressed en­vi­ron­ment to pur­sue more ac­qui­si­tions. If it ’s pos­si­ble to buy (much l arger) con­struc­tion com­pa­nies like Group 5 on 8 ti mes earn­ings at the mo­ment, it would sug­gest there s h oul d be s ome com­pel l i ng op­por­tu­ni­ties for ARB to pur­chase smaller play­ers in its niche.

But the eval­u­a­tion of the com­pany also needs to be seen in the con­text of what else an in­vestor can spend their money on. Out­side of the con­struc­tion and in­fra­struc­ture space, there are more com­pelling op­por­tu­ni­ties in my opin­ion, so from my point of view, ARB is a Hold.

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