ARH – Boring, gloriously boring growth


ARB Holdings supplies electrical products out of 20 wholesale branches across South Africa’s nine provinces. They supply SABS approved instrumentation equipment, overhead line and conductor equipment and low-voltage products. Through Eurolux, which you may have seen at the nearest Builder’s Warehouse, they supply LED’s and fluorescent lamps. I am an engineer and even I admit that this is an extremely boring business.

However, Vestact, in their excellent daily newsletter have pointed out that this boring business has made the chairman and founder a very wealthy man. Electrician Alan R Burke (who the business is named after) founded it in 1980 with one bakkie and one container. Since then, boring growth over 36 years has made his 54% stake in the R1.5bn company worth a cool R800m.

I have been a shareholder in ARH since 2011 and have recently increased my shareholding. In this time, the company has continued on a steady, boring path of continuous growth. Turnover and earnings per share have doubled, the profit margin has increased by 4 percentage points to 22%, the share price has doubled and the dividend (including special dividend) has increased from 12c/share to 33c/share. ARH is trading at a PE of 10 and a healthy dividend yield of 5%. The company has no debt and cash on hand of R240m, or R1/share, 17% of the market cap.

From the recent 2016 annual report there are several signs that show that there is no reason to expect this growth trajectory to stop:

  • “ ‘On ground’ presence established in Zambia.”

Africa’s population is growing and maturing and expecting increasing electrification. Positioning in Africa will be essential for a South African business in coming decades.

  • “…the board continues to evaluate potential acquisitions to further diversify the business”

Industrial companies are showing good value at the moment, as negativity around infrastructure investment continues. An ungeared company sitting on a cash pile is perfectly positioned to make an acquisition at the bottom of the market. The world is undergoing a green energy revolution in the next decade and Africa will be at the forefront of this. Diversification into Green Energy tech or smart grid equipment will be ideal for ARH.

  • “I am confident that ARB has positioned itself in its various markets to continue to gain market share and grow its customer base.”

These are words from the pen of the Chairman, who has built the business. He would not utter these comments lightly.

In conclusion, the company remains relatively small and nimble and is operating in a world with strong fundamentals for boring steady growth to continue for decades.

3 thoughts on “ARH – Boring, gloriously boring growth

  1. Pingback: Overview of Posts | Business Musings

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  3. Pingback: ARH – Time to return more cash to shareholders | Business Musings

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