@Vandelay agree PWH looks expensive at the moment, especially compared to other opportunities in the market right now.

Also agree that looking at expected future returns from here is the lens through which to assess opportunities competing for your capital.

Sticking with the 5 year time horizon and the methodology you outline, I ran some numbers and got the following.

Observations:

$SP = $11.97 @ 13-Jan-22 * SOI = 100.6m (fully diluted) = Mkt Cap of AU$1,203.8m.

Assumptions:

NPAT Margin in 5 years = 20% (95% of last 5 year average, which has been stable between 20-23%).

PE Exit Multiple in 5 years = 28.5% (90% of last 5 year average @ 30-Jun). Trailing PE is currently double this at 57.8x.

10% Required Rate of Return (RRR).

This requires a 5 year Revenue CAGR of 27%.

That is, with the above NPAT Margin and Exit PE Multiple in 5 years, you would need a 27% Revenue CAGR to earn a 10% Compound Return from current prices.

Questions:

So can they do 27% CAGR? I think they definitely can but not sure of the probability. Probably not the best base case.

What if 5yr Revenue CAGR is 18% as @Vandelay expects? All else being equal, that would halve your expected Compound Return (RRR) to 5% from current prices.

Are my assumptions too conservative? I think they're a little on the conservative side, but not so much as to offer a large margin of safety.

Other considerations:

They could also be a takeover target, but Kees has a blocking stake > 20%, although his son is now out of the business, so he may sell if the terms are right? Not enough certainty to put a premium on for this in my view.

At the AGM, mgmt said motorsports revenue growth to be moderate, but that the smaller Auto OEM & Aero/Defence segments to be stronger.

Capex in FY23 projected to be back to FY21 levels (double FY22), so they are looking to keep growing through innovation which they look to be adequately funded to do. With their prospects and track record of execution, this is a business I would like to own (more of) for the long term.

However, given the expected moderate Revenue growth from motorsports being the biggest segment and smaller segments set to grow strongly from here, the high $SP could be under threat if top line growth underwhelms.

Disc: Held