Our 12-month target price of $39.54 is derived by rolling forward our blended valuation at the cost of equity, less the next 12 months of dividends to be paid. Our blended valuation is the rough average of the following valuation methodologies:

• DCF valuation of $32.43;
• Sum-of-the-parts valuation of $41.52; and
• P/E Rel valuation of $36.74.

Our DCF valuation is derived using a beta of 0.81 and a WACC of 9.2%. We use a risk free rate of 4% and a nominal terminal growth rate of 3.75%.
Our SOTP valuation is derived by comparing ARB with Australian auto peers. We apply a premium to reflect ARB’s improved competitive position compared to its peers following the extension and expansion of instant asset write-off.
Using a PE rel valuation we value ARB at a premium to the ASX 300 FY26e PE of 18x.

The key risks faced by ARB to achieving our target price are: i) a rising AUD/USD as ARB seeks to increase its exports; ii) a reliance upon key personnel given the existing management have been responsible for the success of the business over the past two decades; iii) quality or supply issues relating to offshore manufacturing, in particular, the more than doubling of capacity in Thailand as planned; and iv) brand damage, which may occur if there is a material product fault.

Upside risks include: i) the competitive landscape remaining subdued, ii) the acceptance of 4WDs becoming even more popular; and iii) sales into the mining and resources sectors boom. If the impact on the company from any of these factors proves to be greater than we anticipate, the stock may not achieve our target price or pass through it.