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Blog

PWR Holdings

Alex Lu

Still plenty of growth opportunities in motorsports

There is still plenty of room for PWR Holdings (PWH) to grow in Formula One, with management estimating they currently supply only 55% of the available Formula One market for cooling solutions. PWH also provides cooling solutions to racing teams in IndyCar, NASCAR, WRC, V8 Supercars and more, but there are many other active motorsports championships it does not currently service. As the world leader in their field, we believe PWH can leverage their expertise to expand into many other racing categories over time.

Early days but US aftermarket feedback is positive

The US automotive aftermarket segment is a large growth opportunity for PWH. Management estimates the US automotive aftermarket for cooling products is worth around US$300m pa and through PWH's acquisition of C&R Racing in 2015, provides the company with a strong platform to launch into this segment. PWH sells under the C&R Racing brand in the US through two main retail distribution channels – Summit Racing and JEGS. A look at these websites shows customer feedback for C&R Racing radiators has been very positive.

Strong upside from a falling AUD/GBP

While the rise in the AUD/GBP over the past 12 months on the back of Brexit will have a negative impact on earnings in FY17, we do note that the opposite also applies when the AUD/GBP falls. On average, we estimate a 1p fall in the AUD/GBP increases revenue by 1% while EBITDA rises 3%. Should the AUD/GBP continue to weaken, this will provide strong upside to our earnings forecast.

Investment view – high quality growth business

PWH's track record of delivering organic revenue growth is well demonstrated by its historical 3-year CAGR of 24% (FY13-16A). While currency headwinds and investments into resources (staff and equipment) will weigh on earnings in FY17, we believe the company is positioned well for strong growth in future years. Given that, we maintain our Add recommendation and share price target. Key risks include: increased competition, product failure, loss of reputation and FX movements.

More information

Morgans clients can login to view our detailed report and share price target for PWR Holdings Limited (PWH). Alternatively, please contact your nearest Morgans office for access.

Disclaimer(s): Analyst owns shares.

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.