Site visit to the Rosehill 4WD Caravan and Camping SuperShow in April 2014. The Supershow hosts over 300 exhibitors and displays all the latest caravans, camper trailers, 4WD accessories, camping and equipment. An outing like this provides us with a great opportunity to talk directly to the exhibitors and manufacturers but also with customers who use these products.
ARB Corporation was an exhibitor at the Supershow. We paid particular attention to this companies display, product, sales staff and customers as ARB have been a long term investment for BKI over many years. It has distributed attractive and growing fully franked dividends to shareholders over a long period, including 2 significant fully franked special dividends in FY2005 and FY2010.
ARB Site: Display footprint was large and looked very professional as always. In contrast, TJM’s site (ARB’s main competitor) was quite disappointing, lacked product range and was visibly quiet.
ARB staff reported that they have had a “very successful” show, with a large number of visitors throughout the 9 days. Both Sales Reps that Will and I spoke to commented on the distinct customer mix being 1) enthusiasts with young families who attended on the weekends and 2) retirees who were there in droves during the week. This customer split continues to be ARB’s bread and butter and drives significant sales of product domestically for their aftermarket range.
There are now over 100 Caravan manufacturers, 160 Camper/slide-on manufacturers and 15 Motorhome/Campervan manufacturers within Australia. Over 96% of these caravan and campers are manufactured in Australia. There were 475k caravans and campervans registered in Australia at the end of 2011 (latest ABS figures). This is a 14.5% increase over the three years from end 2008. The industry is producing just over 18k caravans per annum. It seems that the average caravan sells for around $60k, which implies that this is a billion dollar industry.
We noticed in particular an explosion in growth of the off-road camper trailers to previous years. It has become a very competitive space with the market leader Jayco occupying 50% of the sector, Fleetwood Corporation 10% and 258 other manufacturers fighting for last 40%. After talking to many owners and operators of these businesses it became obvious that many of them use and recommend ARB Accessories to complete the fit out of their caravans and campers.
So despite there being significant competition in caravans and campers there continues to be one real leader in accessories, ARB. In a further push for ARB and product recognition, the winners of the Camper Trailer of the Year “Patriot Campers” had many ARB products recommended on their trailer. It was reassuring that ARB’s quality product and innovation continues to bode well with not just the retiree or enthusiast but the manufacturer as well.
Research and Development spend continues at ARB. Management consider this key to maintaining the Company’s long term competitive advantage. ARB have a large team of engineers who are constantly innovating and introducing new brands and products into the market to ensure ARB hold onto their number 1 status. On display at this year’s site was new products including: Redarc Solar Products (solar blankets and panels), LED Spot Lights, ARB swags, Fox Awning Accessories and a new range of Old Man Emu suspension products.
Management are held in very high regard. Roger Brown and Andrew Brown (sons of founder Anthony Ronald Brown – ARB) hold positions of Executive Chairman and MD respectively. Long term associate John Forsyth has been Company Secretary and Executive Director since 1987. Strong share ownership by management and 100% Board attendance in FY13 set a solid foundation for this company to thrive and for staff members to aspire to.
ARB has historically paid out 50% of earnings; suggesting plenty of wiggle room to maintain the fully franked dividend distribution. ARB are debt free and continue to invest for the future, spend money on their businesses ensuring their facilities are state of the art, enabling them to stay competitive and continue to manufacture product right here in Australia, employ Australians and deliver profits and fully franked dividends for their shareholders, not just now but for many years to come.
Speaking with ARB’s customers further highlighted the desire for quality product and confirmed to us that ARB fits the BKI investment criteria in spades. It is an attractive company producing sound profits, possess a clear competitive advantage, is well managed and offers shareholders an attractive fully franked dividend.
We expect good organic earnings growth over many years to come from ARB as they are well diversified to counter any issues or weakness in the Resource/Mining and Agricultural sectors as the retiree and 4WD enthusiast seem to be as prominent a user of ARB products as they have ever been.
Tom Millner
June 2014