Our target price of $1.83 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 average of:
• DCF valuation of $1.41
• Sum-of-the-parts valuation of $2.01
• PE relative valuation of $1.72

Using a PE relative measure, we use ASX 300 FY26 PE of 20.7x as a benchmark to value AX1.

Our DCF valuation is derived using a beta of 1.0 and a WACC of 8.7%. We use a risk free rate of 4%, equity risk premium of 7%, and a terminal growth rate of 3.75%.

Our SOTP valuation is derived by comparing AX1 with domestic diversified retailers.

We see the following downside risks to achieving our target price: i) gross margin pressure due to a falling AUD; ii) loss of a major distribution license; iii) loss of sales due to inventory shortage or lower gross margins due to excess stock; iv) channel conflict between the retail and wholesale channels; v) cannibalisation of existing stores from new rollouts; vi) exposure to changing fashion trends; vii) brand obsolescence; viii) increasing competition from online players and existing peers; ix) a significant slowdown in consumer footwear spending; and x) and recurring lockdowns, resulting in prolonged disruption to mall traffic.

We see the following upside risks to achieving our target price: i) better-than-expected LFL sales momentum than we forecast; and ii) gross margins being better than we forecast.