ARB Corporation shares gain as UBS upgrades to 'neutral'
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The news: Shares in ARB Corporation rallied after UBS upgraded its rating on the car accessories supplier, saying the market has already priced in an "underwhelming result" at its upcoming full-year financial report.
The numbers: ARB shares were up 2.2% to $35.27 at 1pm AEST, having lowered 11% over the last 12 months.
UBS upgraded its rating on ARB from 'sell' to 'neutral' and raised its 12-month price target from $31 to $35.
The context: UBS analysts said the downside risk driving its previous 'sell' rating has now moderated. ARB may have survived the worst of the softness in domestic sales of key new vehicles, they noted, with further interest rate cuts to come.
The analysts also said that over the last 12 months, consensus profit-before-tax margins have been cut by around 190 basis points — from 20.8% to 18.9% — reducing the risk of a material negative surprise at ARB's upcoming result.
However, the analysts said the stock "still screens as expensive" given its growth outlook, elevated margins and declining return on invested capital.
What they said: "Overall we still expect a modest 2H25 miss, but recent data suggests some potential green shoots may appear in ARB's outlook commentary at the result given we estimate Australian aftermarket trends and exit trajectory into 1H26 has improved through the course of the half from a slow start in Jan/Feb'25," the analysts said.
"Further, downgrades at recent results have not resulted in material share price sell-offs, indicating the market is willing to look through the near-term and back the long-term story."
The source: UBS research
