Bear Case Considerations

A bear case for ARB requires intellectual honesty. This is one of the highest quality businesses on the ASX, with a 50 year track record, no debt, dominant domestic market share and a genuinely wide moat. The bear case is not that ARB is a bad business. It is that the current growth narrative depends heavily on assumptions that may not play out, and that even after a severe de-rating, the risks have not fully resolved.

At the time of writing ARB trades at $17.88, implying a market capitalisation of approximately $1.49 billion. The stock has fallen more than 55% from its peak above $55 in January 2022. The market has already repriced significant risk. The question is whether that repricing is sufficient, or whether the structural headwinds justify further downside.

The US is the thesis and it is unproven at scale

The entire re-rating argument for ARB rests on the US expansion succeeding. The Australian aftermarket business is mature, revenue was down 1.7% in H1 FY26 and has been broadly flat for several years. ARB's 10 year revenue CAGR has moderated from approximately 19% since its 1987 listing to approximately 8% over the past decade. Without the US delivering meaningful earnings growth, ARB is a high-quality but slow growing domestic company, and the question becomes what multiple that deserves.

The ORW/4WP acquisition was made from a business in Chapter 11 bankruptcy. ARB and ORW moved quickly to restructure, closing 5 of the initial 53 stores, transitioning the ERP system and integrating approximately 500 employees, and early results are genuinely encouraging. But 48 stores across only 9 US states is a thin foothold in a country with a truck aftermarket estimated at 10 times the size of Australia's. The store-in-store ARB display rollout is still in early stages, with initial pilot stores in California, Nevada, Colorado, Texas and Florida only now being assessed and expanded. Success in 6 pilot stores does not confirm success across 48 stores, let alone the broader US market.

The American consumer's relationship with truck accessories is structurally different from Australia's. US buyers have historically shopped by category, Warn for winches, Fox for shocks, Method for wheels, rather than doing a full ARB-branded build. ARB's thesis requires changing that behaviour at scale, which is a cultural and marketing challenge as much as a distribution one. There is no guarantee it works on the timeline or at the margins the market may be expecting.

The AUD/THB exchange rate is improving but remains a risk to monitor

One of the biggest drivers of profit compression in FY25 and H1 FY26 was the weakness of the Australian dollar against the Thai Baht. A significant proportion of ARB's products are manufactured in Thailand, so costs are denominated in Thai Baht while revenue is predominantly in Australian dollars. When the Baht strengthens or the AUD weakens, margins compress directly and immediately.

The picture has improved materially since the depths of 2025. The AUD/THB rate has recovered from the 21.0 to 21.5 Baht to the dollar range that prevailed through most of calendar 2025 to approximately 23.4 Baht to the dollar as at May 2026, a roughly 10% improvement in ARB's purchasing power for Thai manufacturing costs. A year ago one Australian dollar bought approximately 21.28 Baht. Today it buys approximately 23.4 Baht. That is a meaningful shift and if sustained represents genuine margin relief heading into 2H FY26 and FY27.

Management has also hedged 2H FY26 Baht exposure at rates described as slightly more favourable than the prior corresponding period, so the near-term earnings impact should be visible in the second half result.

The residual bear case on currency is not the current rate but the volatility risk. The 90 day range has been 21.88 to 23.47, illustrating that the rate can move materially in short periods. ARB has no ability to control the AUD/THB rate and a reversal back toward 21 Baht would immediately re-impose the margin pressure seen in H1 FY26. The structural dependency on Thai manufacturing remains, it is the source of ARB's cost competitiveness, but it also means the company's margins are permanently exposed to a currency pair that most Australian investors do not naturally monitor. The improvement as at May 2026 genuinely weakens this pillar of the bear case, but it should be monitored rather than assumed away.

Discretionary exposure in a prolonged consumer downturn

ARB sells accessories for trucks, discretionary products attached to discretionary vehicle purchases. The business is not recession proof. The only prior year of meaningful negative revenue growth in ARB's listed history was 1991, during an Australian recession, when domestic sales fell 6% and profit declined 73%. Revenue recovered, but the profit sensitivity to volume was severe and illustrative.

The current environment shares some of those characteristics. Australian consumer sentiment remains soft. New vehicle sales of ARB's core platforms, Toyota Hilux, Ford Ranger and Isuzu D-Max, were all down 17% in FY25. H1 FY26 showed the Ford Ranger down 1%, Ford Everest down 9%, LandCruiser 70 Series down 12% and Isuzu D-Max down 13%. When fewer new vehicles enter the fleet, the addressable market for accessories shrinks in the near term and ARB's fitting operations, which are labour-intensive and largely fixed-cost, become underutilised.

A prolonged period of weak new vehicle sales, combined with currency headwinds, could see earnings stagnate for multiple years even if the underlying business quality remains completely intact.

OEM revenue is concentrated and lumpy

OEM sales represent approximately 8% of revenue but declined 38.2% in H1 FY26, worse than management guided at the October 2025 AGM. The explanation is plausible. OEM customers overstocked in 2H FY25, then vehicle sales weakened, so orders dried up. But the episode illustrates that OEM revenue is materially lumpier and harder to forecast than aftermarket sales. A contract with Toyota or Ford is a genuine competitive advantage, but it also creates customer concentration risk. If either relationship changed through a contract not being renewed, a model mix shift or an OEM moving to an alternative supplier, the revenue impact would be immediate and visible in the result.

The fitter technician shortage is a structural operational constraint

ARB explicitly flags in both the FY25 annual report and the H1 FY26 result that fitting operations are impacted by a shortage of fitter technicians. This is not a temporary post-COVID problem. It has persisted across multiple years of reporting. Fitting is central to ARB's retail model as it generates service revenue, ensures products are properly installed on complex modern vehicles and locks customers into the ARB ecosystem. A structural inability to scale fitting capacity caps store throughput regardless of how many stores are opened or how healthy the order book is.

The valuation question after a significant de-rating

ARB historically traded at 25 to 35 times earnings, reflecting genuine quality. The stock has now fallen more than 55% from its 2022 peak, trading at $17.88 with a market cap of approximately $1.49 billion. At approximately 83.5 million shares on issue and annualising H1 FY26 underlying NPAT of $43.2 million, a full year FY26 result of approximately $85 to $95 million seems reasonable if the second half recovers as guided. That implies a forward PE of approximately 16 to 18 times, a significant discount to the historical range.

The bear case on valuation is not that ARB is obviously expensive today. It is that a further miss, a 2H FY26 margin recovery that falls short of guidance or OEM sales weaker than expected, could compress earnings and sentiment simultaneously from a price that already reflects considerable disappointment.

Competitive intensification in the US

Fox Factory Holdings is the most comparable publicly listed US competitor, with approximately $1.4 billion in revenue and an aggressive acquisition strategy spanning FOX shocks, Method Race Wheels, BDS Suspension and truck upfit brands. Fox Factory is better capitalised for the US market and has deep home-ground distribution advantages. The Made in USA narrative, which brands like Addictive Desert Designs use effectively for Jeep and Ford Raptor fitments, resonates with American buyers in ways that ARB's Australian heritage does not automatically replicate.

US tariffs on steel, aluminium and automotive products, flagged explicitly as a headwind by ARB management in FY25, directly increase input costs for products manufactured in Thailand and shipped to the US. If tariffs escalate or become permanent structural policy, they impair the economics of ARB's US business model, which currently relies on Thai-manufactured product shipped to the US rather than local manufacturing.

EVs and the BYD Shark represent a long-term structural question

ARB openly acknowledges in the H1 FY26 report that it is monitoring accessory demand for the BYD Shark. The electric pick-up presents a genuine medium-term uncertainty. ARB's core products including bull bars, suspension lifts, snorkels and long-range fuel tanks were designed for and validated on internal combustion engine 4WDs. Electric pick-ups have different weight distributions, different underbody configurations, no combustion air intake requiring a snorkel and different safety system integration requirements. Accessory attachment rates for new EV entrants are unknown and the customer demographic may differ from ARB's traditional buyer.

This is not an immediate threat as ICE trucks will dominate the relevant vehicle fleet for at least a decade, but it is a genuine long-term moat question. ARB's proprietary fitment data, accumulated across 50 years of ICE vehicle development and representing one of its deepest competitive advantages, must be rebuilt from scratch for each new EV or hybrid platform.

Summary

The bear case for ARB is not that the business will fail. It is that the next two to three years may deliver earnings that continue to disappoint relative to expectations in a business where the valuation, even after a greater than 55% fall from peak, may not yet fully reflect the duration of the headwinds. The combination of currency exposure, soft domestic new vehicle sales, OEM lumpiness, a US expansion that is progressing but genuinely early stage and a fitter technician shortage creates a scenario where even a high quality business generates flat or declining earnings for an extended period.

Market Cap $1.5B at $17.94 (15 May 2026)

Director Bio’s

Robert D Fraser — B.Ec., LLB (Hons). Independent Non-executive Chairman since 2022, Non-executive Director since 2004. Corporate advisor on capital markets, capital management and funding strategies. Non-executive Director of Omni Bridgeway Ltd (formerly IMF Bentham Ltd). Member of the Takeovers Panel. Member of the Audit & Risk and Remuneration & Nomination Committees.

Andrew H Brown — Managing Director. Wide range of experience in automotive engineering and marketing. Managing Director since 2012. Executive Director from 1987 to 2012.

Shona M Faber — B.Bus., GAICD. Independent Non-executive Director since 2022. Key executive roles leading commercial operations including manufacturing and sales.

Adrian R Fitzpatrick — B.Com., FCA. Independent Non-executive Director since 2016. Former partner of Pitcher Partners (retired 2016). Non-executive Chairman of Aussie Broadband Limited.

Karen L Phin — BA., LLB (Hons), GAICD. Independent Non-executive Director since 2019. Corporate advisor on capital markets. Previously Non-executive Deputy Chairman of Magellan Financial Group Limited until 2023, and Non-executive Director of Magellan Financial Group Limited until 2022. Non-executive Director of Omni Bridgeway Ltd. Member of the Audit & Risk and Remuneration & Nomination Committees.

Andrew P Stott — Independent Non-executive Director since 2006. Wide 4WD industry experience. Non-executive Director of AMCIL Limited.

Roger G Brown — B.E., M.B.A. Non-executive Director since 1987. Non-executive Chairman from 2016 to 2022. Executive Chairman from 1987 to 2016. Managing Director from 1987 to 2012. Chairman of the Remuneration & Nomination Committee. Company Director and corporate adviser. Chairman of Supply Network Limited, Non-executive Director of F.F.I. Holdings Limited and MFF Capital Investments Limited. President of the Muscular Dystrophy Association of NSW.

Worth noting he and Andrew Brown together hold approximately 4.95 million shares together between them they control roughly 6% of the company. Roger essentially built ARB from 1987 through to handing the Managing Director role to Andrew in 2012, so the Brown family's continued presence on the board is a meaningful signal of long-term owner-operator alignment.

Recent Buying History

Karen Phin

·      13 March 2026

Buying on market 3,000 at $21.80 per share ($65,400)

·      21 May 2025

Buying on market 2,000 at $30.06 per share ($60,120)

Andrew Scott

·      12 March 2026

Buying on market 3,000 at $22.50 per share ($67,500)

Roger Brown And Andrew Brown

·      11 & 12 March 2025

Buying on market 30,180 at $33.1310 per share ($999,893.58)

Shares are held in common through Rogand Pty Ltd.

History

The founder — Anthony Ronald Brown (the original ARB)

The company name is literally the founder's initials. Anthony Ronald Brown known as Tony  started ARB in 1975 after returning from a 4WD trip through Cape York, Queensland, frustrated that he couldn't find reliable, quality protective gear for his vehicle. He began making roof racks and bull bars in the family garage in Melbourne, then in early 1976 rented a 1,000 square foot factory in Olive Grove, Ringwood, Victoria, and hired his first employee. ARB Engineering Pty Ltd was formally incorporated on 1 July 1977.

That origin story matters because it explains ARB's product philosophy to this day. It wasn't started by a businessman who spotted a market gap it was started by a 4WD enthusiast who wanted better gear and couldn't find it. That culture of genuine product obsession has persisted through every generation of management.

The 1980s — building the foundation

ARB outgrew Ringwood by 1981 and moved to larger premises, then again in 1986 to a 5,110 square metre workshop in Croydon, 55 times the size of the original factory. By 1983 there were ARB stores in every Australian state.

In 1987 ARB acquired the Roberts Diff Lock and re-launched it as the Air Locker, a pneumatic differential locking system that lets drivers lock and unlock their differentials on demand via a button and onboard air compressor. ARB also developed its own 12V air compressor the same year. No competitor has meaningfully replicated the Air Locker system in nearly 40 years. It became ARB's most defensible product and its calling card in export markets, particularly the US. Critically, the Air Locker was the product that gave ARB a compelling reason to pursue international markets, high value, compact enough to ship affordably, and with no equivalent anywhere in the world.

Also in 1987, ARB listed on the ASX. The listing was partly driven by the need for capital to continue developing and commercialising the Air Locker. Anyone who has held from listing to today has experienced one of the great ASX compounding stories.

In 1988 ARB acquired the Old Man Emu (OME) suspension business. That acquisition, done for a modest sum, became ARB's largest global product line and is almost certainly the company's single best capital allocation decision in its history.

The Brown brothers — a family business

Tony Brown founded ARB with early hands-on help from his two brothers, Roger and Andrew. All three are brothers an important clarification. Roger and Andrew did not inherit the business from Tony in a parent-to-child succession; rather, they were there from nearly the beginning, painting roof racks by hand and building the business alongside Tony.

Roger Brown joined the company formally around 1977 and became Managing Director and Executive Chairman when ARB listed in 1987, a role he held until 2012, a 25-year tenure as MD. He then served as Executive Chairman until 2016, and Non-executive Chairman until 2022 when independent director Robert Fraser took over as chairman. That is 35 years of continuous Brown family leadership at the most senior level.

Under Roger's stewardship ARB compounded at exceptional rates by 2017 revenue had grown at approximately 19% since listing and EBIT at approximately 25%, according to independent analyst research. He oversaw the Thailand manufacturing expansion, the international distribution buildout, OEM relationship development with Toyota and Nissan, and the acquisition of several complementary businesses.

Andrew Brown has been an Executive Director since 1987 essentially his entire working life and became Managing Director in 2012 when Roger transitioned to Executive Chairman. Andrew's era has been defined by three things: accelerating the OEM strategy, including the Ford License Accessory programme and the Toyota Trailhunter partnership in the US; the US expansion strategy through ORW and the 4WP acquisition; and managing ARB through COVID, which paradoxically was a boom period as Australians bought 4WDs and camping equipment in record numbers.

The Brown family's combined shareholding Roger and Andrew together holding approximately 9.9 million shares as at the FY25 annual report, with approximately 4.9 million held in a common vehicle called Rogand Pty Ltd represents roughly 12% of the company. They have retained the vast majority of their position throughout, though they did sell 1 million shares in November 2021 at $49.50 each near the all-time high. That long-term alignment between the family's wealth and shareholder outcomes is a structural governance advantage that most ASX companies don't have.

The Lachlan McCann appointment

In a notable governance evolution, ARB appointed Lachlan McCann as CEO, sitting alongside Andrew Brown who remains Managing Director. This separation of the MD and CEO roles reflects a thoughtful transition — Andrew retains strategic and ownership-level oversight while McCann handles day-to-day operational leadership. McCann's remuneration is heavily tied to EPS growth through the LTI plan, directly aligning him with the long-term shareholder base.

50 years in 2025

The FY25 annual report celebrates ARB's 50th anniversary  from a family garage in 1975 to $730 million in revenue, operations in over 100 countries, 2,390 employees, and a market capitalisation that at its peak exceeded $4 billion. The 50th year also happened to be the year ARB made its most ambitious bet yet acquiring a 50% stake in ORW and gaining access to the 48-store 4WP retail network across the US.

The data for US retail during April looks mixed for ARB. While US retail sales have been growing for 3 months, motor vehicle sales have fallen. I don’t know what impact this will be having on ARB sales in the US, but probably negative. With gas prices doubling in the US since the war in Iran began, there could also be a swing from ICE vehicles to EVs as we have seen in Australia. This could be a tough half for ARB both here and in the US. Due to the high fuel prices likely to have a short term negative impact on ARB sales, I am sitting on the sidelines for now even though the share price looks tempting.

(Not held)

AFR report (Markets Live, 15/05/2026)

“US retail sales advanced for a third month in April, pointing to some signs of consumer resilience despite sharply higher gasoline prices.

The value of retail purchases increased 0.5 per cent last month after a revised 1.6 per cent gain in March, Commerce Department data showed. Because the figures aren’t adjusted for inflation, an increase could reflect higher prices rather than more sales volumes.

Nine out of 13 categories posted increases. Sales at sporting goods stores, online merchants and electronics outlets rose in April. Motor-vehicle sales fell. Receipts at gas stations rose 2.8 per cent as the Iran war pushed gas prices to the highest levels since 2022. Spending at grocery stores also rose firmly, likely reflecting a surge in food costs in the month.

The report suggests higher-than-usual tax refunds and a stock-market rally helped provide a financial cushion against mounting inflationary pressures. However, it’s unclear how long that will sustain robust demand. Inflation-adjusted wages are declining once again and Americans are saving less.

So-called control-group sales — which feed into the government’s calculation of goods spending for quarterly gross domestic product — increased a larger-than-expected 0.5 per cent. The measure excludes food services, auto dealers, building materials stores and gasoline stations. Outside of receipts at gas stations, sales rose 0.3 per cent, the least in three months.”

A hodgepodge collection of charts and thoughts on ARB. Full disclosure, I own it and also have the investing "P Plates" on, so I know just enough to be dangerous. Do your own research as always.

(I'm not sure if it's a good way to do it but all 2026 numbers are the 1st half results x2)

For me ARB has existed in three modes. From beginning until 2020 is was a steady, reliable compound growth machine. 2021 bought a big step up in revenue, margin and earnings. Then 2021 until present has seen slow/flat revenue growth, with a draw back on margin and earnings. You have to zoom out a fair bit to see that story, but it's a very different looking company depending on how far out you zoom.

-Recent share price has loosely followed margin. The big questions for me are; is the margin dropping a sign of something wrong under the hood, a return to normal post a COVID/money printing boom, or customer behaviour changing?

The below screen grabs are pretty back of the napkin stuff, data pulled from Commsec, old company reports from the asx site and more recently from the ARB investor page. I built it with no intention of sharing it, I don't think there are errors with the scaling or numbers, but double check it by all means.

REVENUE:

NET PROFIT:

My framing is that it's a reliable compounder that's returning to normal after a few wild years. I think margin is back to where it was pre 2021 (give or take). They've managed to hold onto most of the 2021 big step up in revenue, haven't sacrificed too much WRT margin, and have nailed the landing on USA expansion. All in a fairly unfriendly world with tariffs, inflation, politics and currency all over the place.

Market sales sectors haven't changed much, a slight move towards less reliance on the Australian market but not drastic.

That's me, looking at the last 5 years it's going backwards, looking at the last 20 years it's bottom left, top right. Which trend will win out, and is it finally cheap enough to buy into the slow and steady growth if the 20 year trend continues?

There’s a lot of interest in ARB from the Strawman community recently now that the share price has fallen 54% from its twelve month high of $40.82 in August 2025 to a 6 year low of $17.61. In November 2021 ARB shares reached an all time high of $54.53

The 5 year share price chart looks tragic!

At just over $18 dollars, the share price looks cheap…but is it a bargain?

Why is ARB trading where it is?

In FY2021 the NPAT margin was 18% and ROE was 23.2%. Fast forward to FY2025 and the NPAT was 13% and ROE 12.7%. What’s in store for this year…and the future?

FY2026 consensus is for revenue of $731 million and NPAT of $86 million (EPS $1.03 per share with 83.7 million shares), making the NPAT margin 11.8%. Current equity is $734 million ($8.77 per share). Coincidently, that puts FY2026 ROE at 11.8% also. That’s half the ROE achieved in FY2021. That’s OK but not amazing. ARB’s quality metrics have deteriorated significantly over 5 years.

What about the future? What needs to change to get ARB performing again? Margins and ROE need to improve while the sales keep growing. How likely is this to happen?

Looking at the 1H2026 results it appears revenue is flat and costs have increased. One of the largest cost increases was materials and consumables which were 4.6% higher pcp. Is this likely to improve? With current inflationary pressures and higher interest rates I don’t think so.

What about sales? Sales were under pressure last half due to a challenging market for 4x4 pick up and SUV sales.

April new car sales data shows that sales are about to get a whole lot worse in 2H2026 for the category ARB is targeting.

Referring to a recent AFR article https://www.afr.com/policy/energy-and-climate/diesel-ute-sales-fall-off-a-cliff-as-fuel-prices-bite-20260505-p5ztwb

“Sales of some of Australia’s most popular diesel utes and four-wheel drives have fallen sharply as the continued spike in fuel prices prompted by the conflict in Iran pushed electric vehicle purchases to another new monthly record in April.”

“The fuel price increase is also stifling consumer interest in large diesel utes and four-wheel drives, with popular models such as Ford’s Ranger and Everest and Toyota’s HiLux and Prado all experiencing substantial falls in year-on-year sales.”

“The biggest loser was the HiLux, which had a 31 per cent drop-off in sales relative to April 2025, followed by the Everest, which lost more than 29 per cent, according to data from the Federal Chamber of Automotive Industries (FCAI) and the Electric Vehicle Council.”

“Overall sales of petrol cars in April were down 30 per cent, while diesel vehicle sales were down 21 per cent.”

My Take

When I look at ARB today, I see more headwinds than tailwinds. If I assume the operating environment does improve slightly and ARB achieves FY2027 NPAT consensus of $1.16 per share, I can calculate a rough value based on that. Using McNiven’s formula assuming equity of $8.77 per share, ROE 13.2% ($1.16/$8.77), 65% payout ratio, dividends fully franked , and requiring a ROI of 10%, I get a valuation of $16. I generally use higher required ROI than 10% so the business doesn’t excite me at the current share price. Nor does the near term for ARB with higher inflation, higher interest rates and higher fuel prices for the foreseeable future.

It’s an avoid for me until there are some signs of recovery.

ARB hitting some fun math this morning (gotta look at the bright side as I'm down about 17% on it).

Anyway, last quarterly earnings on Google Finance were 21.09M, annualized out that's 84.36M. Their shares outstanding is 83.46M, which gives an earnings per share of 1 (or close enough to), and makes the current share price match the P/E ratio ( about $20).

For what it's worth I suspect it drops from here, oil shocks probably not helping new vehicle delivery, big 4x4 purchases or retirees wanting to spend up on a 4x4 and do the big lap.

Still held SM and IRL, it's a 7% position after a recent top up.

Two directors have bought about $65k on market each, disclosed on 13/03 and today.

ARB putting up a decent result in a challenging environment. Decent sales growth with a bit of a hit to NPAT.

Challenges include, the Aussie dollar trading at an all time low against the Thai Baht (where a lot of the products are made), Tariffs against imports to the US, difficulty attracting and retaining skilled labor in Aus and around a 15-20% reduction in new car sales across the key models to ARB.

On the positive side, export markets have all seen growth, a lot of the Aussie stores are seeing refits and investments as well as the HQ, investments into an online portal and digital marketing. The big one is the US strategy seems to be paying off, having reached profitability milestones early despite a fairly challenging economic and political environment.

I'm encouraged by the fact they're still seeing sales growth in a challenging environment, and they're taking the time and spending the money to shore up the foundations. If they can do that in a challenging environment I'm keen to see what they can do if/when they can get on a roll with new car sales and a more favourable consumer spending environment in Australia (if there is one thing that aussies love more than seeing equity grow in their property, it's stripping that equity out to buy a caravan and do up the 4x4).

As always time will tell but I feel they're positioning themselves well for the future, just need to wait for it to arrive now.

-Held irl and on SM

I topped up on ARB through the week. Apparently some insiders did too, to the tune of about a million dollars. My addition was somewhat more modest, but always nice to have insider alignment.

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