Another year of steady growth and high returns from ARB Corporation

ARB Corporation (ASX: ARP) is still ticking over with yet another rise in revenues and profits. Up 8.3% to $294.5 million in sales, net profit pulled ahead even further with 10% increase to $42.36 million, and keeping its 14.53% net profit margin up in line with its 10-year average compounded growth of 14.9%.

This maker, distributor and retailer of four-wheel drive vehicle accessories and light metal engineering works is known for its off-road parts and accessories. It has risen in share price from $3 in 2009 to presently around $12. From 1 July 2012, the share price has jumped 35.8% while the ASX All Ordinaries Index (ASX: XAO) rose only 22%. Investors rejoice and are always on the lookout for companies that fill a market category so well and thoroughly such as this.

The Australian aftermarket sales make up 69% of total sales, and they were up by 15%, whereas export and original equipment manufacturer sales were down by 10%. Even when the economy is slow, people still want to fit out their cars and off-road vehicles with accessories, and the four-wheeling love that Australians have keeps that firing on all cylinders. ARB added four more stores, making the total now 47.19 of those are company owned, so the majority are franchise stores.

It was able to complete a new factory and warehouse in Thailand in December 2012, facilitating the reduction of distribution costs and improving supply times to the company’s and customers’ warehouses around the world. Exports make up 21% of total sales, and the company ship products back to Australia also, keeping production costs lower.

Decreased revenue from export sales can be partly attributed to the previously very high Aussie dollar exchange rate, yet the recent fall will improve its competitive pricing power. Original equipment manufacturer sales took a hit from the general cutbacks in the mining industry, causing a decline in demand.

Looking at the financials, operating cash flow was up from last year, and shareholder equity maintained its steady climb. Return on equity was 23.86%, and return on assets was 19.34% — solid gains for the shareholder owners. The company has no debt, and its current ratio (current assets/current liabilities) is a rock solid 3.43.

Earnings per share was 58.44 cents. A final dividend of 15.5 cents per share fully franked was declared, bringing total dividends for the year to 28 cps.

Foolish takeaway

A successful investor only needs to have a couple of these kinds of money spinners in their portfolio to achieve great returns. Looking for growth stories and buying in at early stages for long-term value is a strategy that never fails.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.

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