Niche business with a big future

A niche business with exposure to multiple market sectors may sound like a contradiction, but the 4WD aftermarket accessories industry is exactly that. While most people think of recreational off-roading, aftermarket accessories are essential across a diverse set of professional users — tradespeople, farmers, miners, land-management agencies, and utility providers all rely on well-equipped 4WD vehicles to operate effectively.

In the Australian market, ARB is the clear leader. Morningstar estimates ARB holds more than a 50% share in fabricated products (bull bars, rollover protection and the like) and around 35% of the suspension market. It also maintains dominant market positions across a wide product spectrum, including fibreglass ute canopies and lids, cargo and drawer systems, lighting, air compressors, winches, long-range fuel tanks, differentials, and other touring and off-road solutions.

While numerous smaller competitors exist and keep the company on its toes, ARB has expressed a willingness to acquire specialised operators that align with its quality focus. The company states it “scans the globe” for such opportunities — and with a strengthened balance sheet in recent years, it is well positioned to act.

ARB operates in markets where equipment failure can have serious consequences. Its reputation for durability and reliability has translated into strong brand loyalty. In my day-to-day work I frequently encounter ARB products — and to borrow Peter Lynch’s philosophy: “If you love the product, chances are you’ll love the stock.”

Having cemented its dominant position domestically since its founding in 1975, ARB has shifted focus to international growth. The company now has offices in the US, Europe and the Middle East, exports to over 100 countries, and operates manufacturing facilities in Australia, Thailand and Czech Republic a solid foundation for continued expansion. The global opportunity is significant.

Financially, ARB is performing well, if not exceptionally. Commsec reports annualised EPS growth over the past five years sits at a respectable 8.9%. Return on equity is 12.7%, down from the peak reached during the post-COVID boom, but still solid. Operating margins remain strong at 23%, and as of 30 June 2025 the company reports no debt. There are few major red flags here.

There are, however, structural challenges. ARB remains exposed to the cyclical nature of the automotive sector and must continuously adapt to new vehicle platforms while supporting accessories for older models — maintaining a broad and complex product range. International expansion introduces regulatory and governance risks, particularly where product safety standards vary. Shifting global trade dynamics may present opportunities but also require vigilance.

At current pricing, the market appears to have the company fairly valued. It is a high-quality operator that belongs on a watchlist for a more attractive entry point — or, as Warren Buffett states, buying “great companies and fair prices, rather than fair companies and great prices”.

Demand for ARB’s niche is unlikely to fade. The company’s strong domestic position and growing international footprint provide a reasonable foundation for medium- to long-term growth. Investors may need patience — spectacular short-term returns look unlikely from present valuation levels — but the probability of steady wealth creation over time remains compelling.