Valuation in May 2025 based on 20 cents EPS for FY25 and 10% p.a. growth rate for next 5 years (two thirds of historical average) with PE of 35 (bottom quartile of historical average). I get an expected return of around 12% p.a. for the next 5 years at the current share price of $6.74

It won't all work out exactly like that of course but solid margin of safety built in based on what's known today.

Why do I own it?

# Market leader in bespoke cooling systems for high performance Motor Sports. They design and produce these systems (on the Gold Coast and in the U.S. and U.K.) for every Formula One and many Nascar, Indycar and V8 Supercar race teams. They have the best systems at the best cost for these teams and strong relationships built on trust and performance. This is a strong trapdoor moat.

# They have begun expanding into Aerospace and Defence (A&D) cooling systems, which also often require bespoke designs and small runs at a time. This business is growing quickly off a low base and they recently won a $9 million contract which is about 8% of this years revenue.

# Doing all their manufacturing in-house protects IP, especially in the later stages of manufacturing. It also reduces the risk of freight damage if unfinished products were transported to and from third parties to work on. They are very protective of all of this, given the competitive nature of motor sports and secrecy surrounding many defence projects.

# They are expanding production capability with a doubling of the facility on the Gold Coast to be completed in FY26 that sets them up for the next decade plus of solid growth. This is a $35 million investment that has impacted FY25 EPS and also sentiment which has provided a suitable entry price with a 5+ year view of the business.

# Business is well diversified geographically and likely to avoid negative tariff impacts with a good spread across the US, Europe and Australia.

# They mostly exited the OEM / mass production market in FY25 which was a short term hit to sales and earnings. This seems a sensible decision so they can focus on the much more profitable bespoke products and ramp up in A&D.

# Has a strong and entrepreneurial founder in Kees Weel who is CEO and Managing DIrector and he still holds 16% of the shares. Do need to see how talent underneath him develops though.

# The Board is small and well suited to the industries they are focused on. Chair Roland Dale has strong experience in Motor Sports. Directors Kym Osley and Amanda Holt are very experienced in the Defence industry. Founder Kees Weel also sits on the Board. Then they complement this small but knowledgeable group with two "professional" Directors that cover legal and accounting.

# It's quite a simple business to understand (although I don't understand the manufacturing part of the products themselves), isn't likely to be easily disrupted and also has a simple balance sheet.

# The culture courtesy of Kees had a reputation for being old school and quite tough. Staff turnover was high at around 40% probably due to both the high demands and mediocre pay rates. Over the last few years they have recognised this is a problem. So they have made a significant investment to raise the pay rates which has seen around a 20% increase in staff costs year over year, despite a fairly flat headcount. This has reduced turnover down to around 15% in FY25. They are also developing PWR Academy in the new site, with a focus on apprentices and development of existing people. Given the strong attraction for people to be able to work on Formula One or top Aerospace projects, if they can improve retention and development further it will only strengthen the moats of this business.

# Strong balance sheet with net cash of $6 million in FY25. Debt to equity ratio of only 15%. ROE / ROC is consistently over 20%.

# Net margins have consistently been over 20% but as they are currently investing heavily in expanded production capability and people, that will impact the margins short term.

# Acceptable MOS at current price of $6.80 in May 2025 at two thirds of the historical growth rate. The business has compounded revenue at around 18% p.a. for more than a decade. (Most Directors have been buying shares in FY25)

# They can deliver double digit revenue and earnings growth for 5 + years so the return should meet my 15% p.a. + target.

What to watch

# Some key person risk if something were to happen to Founder and major shareholder Kees Weel who is currently out on medical leave but expected to return - need to watch how next level of management progresses in the next couple of years. (Very impressed with CFO Sharyn Williams. And acting CEO Matt Bryson is very knowledgeable having been with the business for 25 years and also holding $20 million in shares...however he lacks the personality to be a permanent CEO in my view)

# Need to closely watch progress in A&D as motor sports is unlikely to grow at past rates.

# Need to watch culture / turnover rates to ensure this is improving.