New products have traction

RESULTS

Need To Know

• Result miss. FY23 earnings are 7-8% below consensus. Dividend 3% below
• Lower margins on delayed recovery of COGS pressures, FX, and delayed pricing initiatives
• Outlook remains strong (new product and US launch). Forward orders still running at x3 pre-covid levels in Australia. 
• New product: $A75k Earth Camper product inquiry registrations hit 1,400. Implying ~$A120m of sales in three months since launch. 

FY23 Results Overview (vs consensus)

Revenue $688m vs $684m

EBITDA $147m vs $159m. Implied margin 1.9% below 

EBIT $124m vs $133m Implied margin 1.5% below

NPAT $88m vs $96m 

DPS 62cps vs 64cps, 100% franked.

Cash conversion improved from 45% to 64%, in part as inventories fell (despite more distribution capability/growth of SKUs). The balance sheet remains net cash $45m.

Outlook: ARB is guiding to both sales and profit growth in FY24. Margin recovery is expected to feature. ARB remains positive on new vehicle supply, customer demand, higher gross profits, and new product launches. 

Investment Implications

We were hoping for a stronger margin and earnings performance for FY23. Inflationary pressures, delayed price increases, FX and non-cash provisions all weigh on EBITDA margins. Does this year's miss become next year's gain? ARB is hopeful of margin recovery in FY24.

We are encouraged by outlook, which in typical ARB fashion is non-specific, whilst pointing to growth. 

More importantly, new product releases, including the high dollar value and gross margin dollar Earth Camper (camper trailer for 4WD adventures) will hit the revenue line in FY24. Early interest in Earth Camper points to an implied ~ A$120m of sales (product begins delivery in late CY24) in the 3 months since launch. 

In our view that has significantly de-risked the FY24E revenue outlook. Consensus has ~$60m Group revenue uplift FY24E vs FY23. In other words, the rest of ARB business can do zero revenue growth and ARB would meet current consensus expectations, on just half the Earth Camper product registrations converting to sales. Initial US interest in Earth Camper according to ARB is very strong, will full-scale launch in October. 

ARB's first US store will open in 1H24 (Seattle). This will be a key litmus test of the ARB model and new CEO Lachlan McCann, in the world’s large market for vehicle accessory sales. We continue to believe that investors are underestimating the US opportunity for ARB.

Buy rating maintained. The current ARB share price implies 26x NTM PER (in line with the long-term average), for mid-teens EPS growth. AGM update on new product sales and US store opening remain the key catalysts in 1H24.