The ARB Corporation Limited (ASX: ARB) share price is up more than 6% after providing a market update.
What was in the update?
ARB announced that it achieved (unaudited) sales revenue growth of 17.7% for the first quarter to 30 September 2020 compared to the prior corresponding period. This is after the recent FY20 result.
Based on its management accounts for the September 2020 quarter, ARB said it has generated a profit before tax of $29.7 million, excluding ‘non-recurring government benefits’ of $9.7 million related to the quarter.
ARB said that excellent growth was achieved in its export markets, while domestic Australian sales growth was moderate and as expected OEM sales (official parts from vehicle makers) decreased compared to the first quarter of last year.
The extended lockdown in Melbourne hurt local sales during the quarter. However, the level of outstanding orders “remains high” and work is being done to overcome logistical difficulties and to increase production to reduce the order bank and better service customers.
The board thinks a lot of the growth from the last quarter was from pent up demand created during the lockdown period earlier in 2020. The trend of people staying in their own country and doing local tours has helped, with government support providing stimulus to people and businesses.
Unless things significantly change economically, ARB expects export sales to remain strong and the OEM order book is growing.
Outlook
ARB said that while the short to medium term outlook is positive, the future economic environment remains very uncertain and no guidance can be given for FY21.
The board believes the first quarter shouldn’t be used as an indicator of the likely full year result because of uncertainties. As government and other COVID-19 related support reduces, the impact on economic activity will be monitored by the company so it can respond as required.
Summary
Considering we’re going through a recession caused by a global pandemic, I think ARB is doing well to grow. It’s a high quality company with a strong history. But as the leadership alluded to, there’s uncertainty what’s going to happen over the next nine to twelve months. Will there be an effective vaccine? Will the economy recover enough so that jobkeeper (and others) won’t be needed?
I think it’s worth being positive about the long term future for the economy, but I wouldn’t go ‘all in’ either with ARB shares. There are other ASX growth shares I’d buy first which seem like they can grow whatever happens next, like Pushpay Holdings Ltd (ASX: PPH).
