PWR Holdings Limited: Speeding along
About the author:
- Author name:
- By Alex Lu
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- Date posted:
- 21 February 2022, 3:00 PM
- Sectors Covered:
- PWR Holdings Limited's (ASX:PWH) 1H22 result was well ahead of our expectations.
- Key positives: Motorsports was the standout performer with revenue jumping 20%; Balance sheet remains very healthy with net cash of $16.7m (1H21: net cash $11.8m); EBITDA margin (ex-JobKeeper) rose 380bp to 31.2%.
- Key negatives: Automotive Aftermarket and Emerging Technologies revenue was below our expectations; Operating cash flow was down 45% mainly due to higher working capital.
- FY22F/FY23F/FY24F EBITDA changes by +2%/+2%/+2%.
- Our target price rises to (login to view) following a roll-forward of our model to FY23 forecasts. Add rating maintained.
1H22 result was well ahead of expectations
PWH’s 1H22 result was strong with EBITDA rising 17% to A$14.2m (+11% vs MorgansF) and underlying NPAT increasing 14% to A$7.5m (+13% vs MorgansF). Impressively, the result included a $2m benefit from JobKeeper in the pcp.Excluding this benefit, EBITDA would have been up 39%.
The key standout for us was Motorsports with revenue increasing 20% driven by racing events returning to more traditional race programs. While we do not anticipate Motorsports to maintain this growth rate going forward given PWH’s already dominant position in many race categories, it was nonetheless a positive sign after a tough couple of years for many teams.
Emerging Technologies is becoming a larger portion of revenue
While Emerging Technologies revenue increased 36%, it was 12% below our forecast. Breaking Emerging Technologies revenue down by sector, Motorsports (+206%) and OEM (+188%) were very strong but this was partially offset by lower Aerospace & Defence (-61%).
The reduction in Aerospace & Defence revenue was due to the cycling of a large program in the pcp, which is not expected to recommence until 2H22. Encouragingly and despite still being at an early stage, PWH was able to broaden the customer base and the number of new programs in Aerospace & Defence, which will support growth in future periods.
Emerging Technologies now represents 14% of total revenue (vs 11% in FY21 and 6% in FY20) with management expecting the division to grow substantially over the long term with the potential to one day be larger than Motorsports.
Outlook remains positive
Management did not provide specific earnings guidance as expected but noted they continue to see extensive organic growth opportunities across the key categories of Motorsports, OEM, Automotive Aftermarket and Emerging Technologies.
With PWH continuing to invest in staff (headcount target of 450+ by Dec-22 vs 363 at Jun-21), capacity and capability, we think this provides a strong indication on the pipeline of future opportunities. For FY22, we forecast EBITDA to be up 18% to $34.0m.
Changes to earnings forecasts
We implement only modest upgrades to earnings forecasts following the strong 1H22 result (FY22-24F EBITDA +2%) due to the ongoing uncertainty around staff availability, supply chain disruptions, raw materials pricing and semiconductor chip accessibility that could result in production delays.
However, if these challenges are resolved quicker than expected, we believe our forecasts may be conservative.
Our equally-blended (DCF, EV/EBITDA, PE) target price rises to (login to view) following a roll-forward of our model to FY23 forecasts. While the stock is not cheap (38.7x FY23F PE), we believe PWH is a high-quality business with a strong track record of growth.
With a healthy pipeline of opportunities across all key segments, we expect this growth trend to continue over the long term.
Announcement of a large OEM or Emerging Technologies contract.
PWH is expecting a government decision on a large Australian Defence program to be made by the end of March. If PWH is selected as part of the supply chain, it would provide good future growth opportunities over an extended period.
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