Warrigals
My best guess (and I stress, it's my own opinion) is that ARB has current, underlying, earnings power of about 52c per share. At the current prices, that puts it on a current earnings yield of a little over 3% (a PE of a little over 30). Definitely no bargain.
At a payout ratio of 50%, that would put it on a grossed up dividend of a little over 2%. To buy at these prices (for me) would imply that I think there is high probability of the dividend growing at greater than about 7.5%, for ever. If the growth rate actually slows down, after 10 years, to something more moderate, like say 4% (for ever), then that will imply (from a valuation perspective) a growth rate in the next 10 years of nearly 17% per annum.
I don't think this is out of the question. With the current moderate payout ratio, there is room for either earnings growth (via profitable earnings retention) or for a progressive increase in the dividend payout ratio, or both.
It is however, very ambitious. Ultimately, if export markets go well, it may easily exceed this. However, with no visibility (on my part) as to the likelihood of exports gaining substantial traction, I personally am not willing (or able) to give this too much weight in my valuation.
So from my perspective, a purchase at current prices is likely to deliver an effective total annual return (over the longer term) in the range 7% to 10% (approximately).
This is my guesstimate.
So I won't be selling. But I don't think I would be buying either.
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