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Investing in success: a look into ARB Corporation’s half-yearly results

Investing in success: a look into ARB Corporation’s half-yearly results

Investors in the Montgomery Small Companies Fund, take note; ARB Corporation Limited (ASX:ARB) has just released its half-yearly financial results for the period ending 31 December 2023, and there’s plenty of good news to unpack. As long-term fans and as shareholders in ARB, we’re keen to understand how the company is performing and what strategies it’s implementing for future growth.

Financial highlights

Revenue Growth: ARB reported sales revenue of $341.5 million for the first half of the fiscal year 2024, representing a slight increase of 0.2 per cent compared to the same period last year.

Profit Performance: After excluding a one-off capital expense of $1.7 million related to its Truckman business acquisition in the UK, which performed better than expected and therefore required the payment of a deferred payout, ARB achieved a commendable profit before tax of $72.5 million, marking robust growth of 12.6 per cent over the previous corresponding period.

Reported profit, which includes the Truckman adjustment, was $70.8 million before tax and $51.3 million after tax, up 9.5 per cent and 8.1 per cent, respectively over the previous corresponding period. 

Dividend declaration

A dividend of 34.0 cents per share, fully franked, will be paid on 19 April 2024, which is up from 30 cents in the prior half and up from 32 cents in the corresponding half of 2023.

Market performance

Perhaps most importantly, OEM sales increased by 53.8 per cent, fully 20 per cent above consensus expectations thanks to increased volume from existing contracts, new vehicle model launches and vehicle availability. The growth doesn’t include new sales from the Toyota partnership yet, hence the company noting “Sales to OEMs in 2H FY2024 and into FY2025 are projected to continue to grow”.

ARB experienced 3.7 per cent growth in the Australian Aftermarket during the first half of the fiscal year, with sales thriving across all states. However, industrial disputes across Australian ports in the second quarter posed challenges, hindering aftermarket sales.

While the UK-based Truckman business exhibited robust sales and profit growth, export sales declined by 13.6 per cent overall due to challenging market conditions in New Zealand and lost sales from the third-party acquisition of its major US customer, 4 Wheel Parts, which closed down its retail store network. 

The company anticipates stronger sales in New Zealand following the repeal of the “Ute tax” in January this year.

ARB is actively engaging with consumers in the USA through initiatives such as the establishment of a US e-commerce site and investments in Off Road Warehouse, Inc.

The company also launched several significant long-term development products during the first half of fiscal year 2024 and plans to release three more in the coming year.

ARB has invested in two U.S.-based 4×4 accessories companies during the period, with which it had established relationships, demonstrating a commitment to expanding its market presence.

Despite inflationary pressures, ARB managed its operating expenses efficiently, achieving a net profit after tax of $52.9 million. With a robust balance sheet boasting a cash balance of $53.6 million and no debt, the company remains financially secure.

Despite ongoing economic uncertainties, ARB maintains a positive outlook driven by strong customer orders, partnerships with OEMs, and a pipeline of innovative products slated for release in 2024.

We remain confident about ARB’s long-term success, especially its growth in the U.S. over time, underpinned by its strong brand, loyal customer base, capable management team, and strategies that leverage those strengths.

As investors in ARB through the Montgomery Small Companies Fund, we believe ARB’s solid foundation and proactive approach to market challenges position ARB for continued growth and success in the years ahead.

The Montgomery Small Companies Fund owns shares in ARB Corporation. This blog was prepared 20 February 2024 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade ARB, you should seek financial advice.

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Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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