SIMON BROWN: I’m chatting now with Billy Neasham, CEO of ARB Holdings. [In its] results to year-end June, revenue was up 24.2%, headline earnings up 37.6% ahead of 2019 earnings; a dividend of 42.5 cents [was declared]. Ten cents of that was a special dividend and comes in at about an 80% dividend yield. And a tangible Nav (net asset value) just over R5. The stock is trading at R5.50.
Billy, good morning. Appreciate the early morning time. You make the point in the intro that your profits are back above 2019 levels. It’s not that the pandemic isn’t still challenging; I suppose a better way of putting it is you’ve learned to live with this and to operate within a pandemic environment.
BILLY NEASHAM: We have to. I think all the businesses in South Africa have to adapt. It’s something that I think will be around for a while at different levels. I’d just like to point out that it’s actually a record year for ARB as a whole, so it’s not just ahead of 2019.
SIMON BROWN: Exactly. And a record dividend payout, as well. I mean, 2019 would have been a record. Supply chains are still a bit of a struggle. For everyone, I chat to, and I’ve got Metair in a moment, and they are also seeing it. Again, it’s challenging but it’s the environment that we currently find ourselves in.
BILLY NEASHAM: I think it’s one of the consequences of the whole lockdown. I don’t think any of us anticipated all these supply-chain challenges. Certainly, those that have stocks or have access to stocks are the ones that are able to trade at the moment. Recently the Singapore port has been closed. Now we believe there are certain ports in China that have been closed, and that impacts both on our lighting division which imports the majority of their products, and the electrical division in terms of the supply of the raw materials to their manufacturers or local suppliers.
SIMON BROWN: Your lighting division, notwithstanding the challenges, has a bit of a boom there. We’ve seen it in other allied industries – in essence, that the home-improvement spend is happening.
BILLY NEASHAM: Correct. I think there’s been a big change in discretionary spend. First of all, we haven’t been able to go to restaurants a lot in the past year, international travel has been stopped completely and people are stuck at home and seeing these odd jobs that they need to do, or they are expanding their home offices and things like that. So certainly there has been a boom in that area.
SIMON BROWN: We’ve seen a fairly significant increase in the copper price. That obviously impacts you, with cabling and the like. Copper is an important component of that. Are you able to pass that on to your customers?
BILLY NEASHAM: Within reason. In 2009, when the copper price last had a major correction, we did take quite a big smack on our bottom line; as a result of that, we have sort of hedged our exposure by limiting our cable stocks, because there is roughly a 60-day cycle in terms of getting in and out of the market if there’s a major correction. But yes, there would be pain on that basis. Generally, our contracts for cable supply are linked to the copper price adjustments. So the prices would change almost monthly, within reason. Some contracts have to be at fixed prices.
SIMON BROWN: You also note a lack of activity and infrastructure investment. We did get, just last week, the gazetting of the new licensing around the 100MW capacity. That must benefit as it starts to roll out. That should potentially be a chunky benefit for ARB.
Read: An electric move
BILLY NEASHAM: It certainly is an opportunity to give us a major benefit. We have sort of latent parts. In March, April we started the solar division in terms of supplying solar panels and inverters and the like, and to some of the other IPP (independent power producer) projects we have supplied certain products, but not to a major extent.
SIMON BROWN: I’ve been chatting about your successes for over a decade. I’ve always thought of ARB – aside from the lighting, which I appreciate is home and the like – as sort of infrastructure, sort of building buildings and such. But you make a point in your notes which had me stopping. You are actually supplying into a data centre construction as well, which in hindsight with me is just not actually thinking through the process.
Almost any construction that’s happening is going to be having cabling, having electronics and ARB’s going to be a potential supplier into that space.
BILLY NEASHAM: I think if you look at any infrastructure-type project, even roads, there’s a certain amount of cabling and lighting and that’s needed for those. In sewerage works, there is the cabling that’s needed and electronics and that are needed for the plant. So any real infrastructure project has some element of electrification.
SIMON BROWN: If we’re building something there’s most definitely a cable somewhere in that building.
Billy Neasham, CEO of ARB Holdings with record numbers, I appreciate the early morning.
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