Strong underlying growth to continue
- PWH will report its 1H18 result on 23 February.
- We expect the result to be driven by further growth in motorsports, automotive aftermarket, emerging technologies and benefits from OEM contracts.
- Our earnings forecasts remain virtually unchanged with FY18F NPAT at A$11.2m, implying 20% growth on the prior year.
- We maintain our Add rating and A$3.10 target price.
1H18 result due 23 February
We forecast 1H18 underlying NPAT to be up 54% to A$2.8m. The result will cycle a much weaker pcp (1H17 NPAT -44%) which was heavily impacted by adverse FX movements. Our forecasts imply a 25/75 1H/2H skew which is slightly greater than the historical seasonality of 30/70.
Currency is still likely to be a minor headwind in the 1H but given recent trends it should be a slight benefit in the 2H, which is when the majority of earnings falls given the typical motorsports racing schedule.
We expect the result to be driven by further growth in motorsports, automotive aftermarket, emerging technologies and benefits from OEM contracts.
Our earnings forecasts however no longer include the earnings contribution from the impending divestment of C&R South.
We expect the balance sheet to remain strong with net cash to remain at around A$9m and a 1H18 DPS of 1.7cps to be declared.
OEM contracts to support medium term growth
Niche, low production run OEM contracts have supplemented revenue growth in the past and given PWH’s strong track record and reputation, the company is increasingly being called upon to provide cooling solutions to these specialised programs.
During FY17, OEM constant currency sales jumped 57% to A$2.5m as PWH delivered on a number of smaller programs and commenced supply to some larger OEM programs.
Some of the larger contracts include being selected as cooling assembly supplier for a niche, high-end, supercar program in the US, a medium sized program (also in the US) and a niche, high-end, Formula One inspired hypercar program in UK/Europe.
Overall, while there will be some contribution from these OEM contracts in FY18, we expect more meaningful contributions to come in FY19 and FY20 with further opportunities for PWH to add to this medium term pipeline over time.
Earnings forecasts remain virtually unchanged
Our earnings forecasts remain virtually unchanged with FY18F NPAT at A$11.2m and FY19F NPAT at A$13.4m.
While PWH’s results have been impacted by adverse currency movements, at its core we believe it is a very strong business with global-leading technology, a very experienced management team and impressive financial metrics.
We see the medium term earnings outlook remaining strong and therefore maintain our Add rating.
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Disclaimer(s): Analyst owns shares.
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