Should I sell ARB?, page-4

Thanks for the analysis Mars, interesting to read about your method and justification.

Personally I value ARB stock at $11.50 based on 2016 earnings growth of 8%. I use the method of a multiple of equity per share factoring return on equity and earnings retention ratio. However a share price well in excess of this valuation in no way offers a temptation to sell because I am of the opinion that the company is at the beginning of a resumption of solid earnings growth. I've been fortunate to hold for over 15 years and always try to imagine what the business will look like in 5 year's time.

We've seen the company make substantial investment in their productive capacity, particularly in Rayong, and various Aus State warehouses in recent years. The marketing push is on in earnest in the large US market, I've noticed price reductions on products on the US website attributed to 'efficiencies at the Kisyth plant', and a substantial program of many promotional events. Exports have doubled from $40m in 2005/6 in a period of a strong $A, and a domestic focus. I expect the next doubling to take less than half that time particularly when we explicitly hear "export sales are a primary focus...".

Domestically I envisage the continued opening of stores to complement a solid outlook in the year's ahead, underwritten by a number of recent utility releases that ARB are busy making accessories for. The OEM market will likely remain tough, but overall the loyal band of customers in Aus who trust the ARB engineered psroduct (for good reason) will ensure that in 5 years the local business will be larger.

As you mentioned Mars, businesses of this quality are extremely hard to find, and well worth holding on to tenanciously IMO.