High dollar to drive auto profits

The higher AUD could accelerate these companies' profits

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published July 31, 2012 2:29 pm AEST

The Australian dollar continues to rise against the greenback, hitting $1.05 overnight. The Aussie is also rising against most major currencies and is now buying 85.7 euro cents – up 11% since a year ago, and has risen 6.5% against the UK pound to 66.9 pence, since mid-May 2012.

While exporters and companies with offshore earnings feel the pain of the high Australian dollar, many importers and retailers stand to benefit from it. Imported goods and services should be relatively cheaper.

Companies looking to make foreign acquisitions or expand their overseas operations could be more active as they try to take advantage of the higher exchange rates. Motor vehicle, bus and truck importers should also benefit from lower prices.

Cheaper fuel (should the oil price stay relatively stable) should also be good news for transport companies, with fuel bills being one of the highest costs they face.

Motor vehicle dealers such as Automotive Holdings Group (ASX: AHE) and AP Eagers Limited (ASX: APE) could be beneficiaries, as foreign made vehicles cost less under a higher Aussie dollar. Cheaper fuel combined with cheaper cars could also increase the attractiveness of buying a bigger new car for some consumers, while cheaper trucks could spur more sales.

For ARB Corporation (ASX: ARP), exports are hit by the higher Aussie dollar against both the Euro and the US dollar, although they only represent 23% of total company sales. ARB has stated that it was unable to pass on higher cost increases due to exchange rate movements last year. The company's margins improve as components and products imported from Thailand, the US, China and other countries are cheaper. Over the longer term, the company wants to grow its exports so would prefer a lower Australian dollar.

Super Cheap Auto – owned by Super Retail Group (ASX: SUL), should also experience lower costs for its imported automotive accessories.

Now if only consumers start spending again, life would be grand for these companies.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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