established: 1976, ASX code: ARP, homepage: www.arb.com.au
Overview:
ARB Corporation is small but growing manufacturer of specialty automotive accessories. It is well established on both Australian and International markets for its outstanding design of equipment for four wheel drives.
Analysis of 2006 financial results:
- Market Cap: Depending on the daily stock price the market cap of this company is about $240mil in about 66.5mil of outstanding shares.
- Shareholders Equity: $61.1mil making the stock’s book value approx. $0.92 per share (16.41% growth on FY2005). From that about $20mil. ($0.30 per share) is available working capital.
- Earnings per share: $0.24 making the average EPS growth in last 3 years about 14.5%
- Return on Equity: 25.8%, averaging over 27% in last 3 years
- Balance Sheet: Working capital of $20mil versus total debt of $6.3mil
Sharemaket’s view:
Average ARP’s Price to Earnings ratio of 14 suggests the share price around $3.35 ($0.24 EPS x 14 P/E)
GROWTH STOCK:
- Conservative forecast of average EPS growth in next 10 years: 12%
- Share price in 10 years time: about $10.3 (EPS in year 10 based on forecasted yearly EPS growth times average P/E)
- Total shareholders return in 10 years times: $12.6 (share price of $10.3 plus $2.3 of all the dividends if current payout ratio of 50% persists)
- Rate of Return in next 10 years based on the beginning of January 2007 price of $3.60 per share: 13.4%pa
Pros and cons:
+++ High Return on Equity
+++ Strong balance sheet
+++ Around 21% of management ownership
— Exposure to volatile automotive market
— Costly development of new products
Further information about Australian Stock Exchange www.asx.com.au
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