The market may be dropping lower today, but that hasn’t stopped the ARB Corporation Limited (ASX: ARB) share price from charging to a new record high.
At the time of writing the 4×4 accessories company’s shares are up 4% to $30.70.
Why is the ARB share price charging higher?
Investors have been buying ARB’s shares on Wednesday after the release of a first quarter trading update this morning.
According to the release, ARB has achieved unaudited sales revenue growth of 17.7% for the first quarter of FY 2021. This compares to 5% growth during the first quarter of FY 2020.
ARB also revealed that its profit before tax during the first quarter was $29.7 million. This doesn’t include non-recurring government benefits of $9.7 million.
However, while no comparison was given for the first quarter of FY 2020, this appears to be a significant increase. For example, during the first half of the previous financial year, ARB recorded a profit before tax of $34.4 million.
This means that it has already achieved 86% of FY 2020’s first half profit before tax after one quarter.
What is driving this strong growth?
The key driver of this growth has been strong demand in export markets.
In the local market sales growth was moderate due to an expected decrease in sales to OEMs compared with the same period last year and the Melbourne lockdowns.
Management believes pent-up demand and a shift in tourism trends are responsible for this strong growth.
It commented: “The Board believes a substantial proportion of the recent growth can be attributed to satisfying pent up demand created during the lockdown period. In addition, an increased trend towards local touring in several countries has been helpful and government support has provided spending stimulus to people and businesses.”
Pleasingly, this strong export demand is expected to continue in the near term.
“In the absence of a significant change in the economic environment, export sales are expected to remain strong and the OEM order book is growing,” it added.
However, while management believes the company’s short to medium term outlook is positive, it acknowledges that the future economic environment remains very uncertain. As a result, no guidance can be given for the remainder of the financial year.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ARB Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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