Straws are discrete research notes that relate to a particular aspect of the company. Grouped under #hashtags, they are ranked by votes.
A good Straw offers a clear and concise perspective on the company and its prospects.
Please visit the forums tab for general discussion.
Going through the AGM slides, interesting that there is no mention of moving into the industrial and data colling space
I would think PWH has the capability to move into the industrial/tech arena for cooling but they haven't and instead prefer to focus on what they are doing now (A&D, autosports, automotive).
If management can't see that as an opportunity, that could be a thesis breaker.
Maybe the new facility migration is proving to be a distraction?
[held]
Would be truly gobsmacked if someone or a group was selling purely because they knew the CFO was about to retire and there was nervousness about transition process. Selling on the basis of inside information?
If so, then this is pretty unfair that someone has taken pure advantage of this information that the rest of the market was unaware of.
Seems to have done a recovery but will have to see...
I guess next time if I see this happen to something I hold, I know where to look...
Probably fully priced
[held]
Update 22/08/2024
Updating with FY24 results added:
FY24 result came in a bit below expectations given that H1 was very strong.
Management have flagged that the next year will likely be an investment year as they build out their capability to facilitate further growth.
I'm going to give them the benefit of the doubt that a CAGR of 15% is still achievable in the long run. Discounting it back 10% pa with a terminal PE of 30x gives a valuation of $7.75.
I think I see some value if the price got to below $8 given the potential upside of their Aerospace and Defence segment (100% yoy growth) but this is still only 15% of total revenue.
Disc: Held IRL and on Strawman.
Update 22/02/2024
Updating my charts with 1H FY24 results added:
Revising some assumptions with NPAT growth of 25% for FY24 before returning to 15% growth for the next 4 years.
Discounting back 10% pa with a terminal PE of 30x gives a valuation of $8.14.
Disc: Held IRL and on Strawman.
Update 19/08/2023
Basing my valuation on a return to growth of 15% pa for the next 5 years and a terminal PE of 30x. This gives me a valuation of $6.80 in order to achieve a return of 10% pa.
Disc: Held IRL and on Strawman.
Update 18/03/2023
H1 FY23 results were quite disappointing for a company that was trading on a high PE although I do think the underlying business will benefit from the near term increase in investment to scale out their business.
I still regard this as one of the highest quality companies on the ASX and am willing to maintain my valuation of $6.51. I think if the share price decreased below $7 this starts to look interesting again. Capital allocation from management has always been first class and there are plenty of projects in the pipeline to continue on their growth trajectory.
The skew to 2H has always been strong so I wouldn't be surprised if they had a killer 2H FY23.
Definitely one to watch if there is further share price weakness.
Disc: Held IRL and on Strawman. Did sell some shares above $11 but will likely look to top up again if the SP fell below $7.
Update 18/08/2022
FY22 NPAT came in at around $20.4m representing a 24% increase YOY.
I am usually hesitant to assume that NPAT will continue to grow by such a large amount every year and so if I maintain my assumption of 15% CAGR for the next 5 years, and a terminal PE of 30x. This gives an updated valuation of $6.51.
Disc: Held IRL and on Strawman.
Update 08/06/2022
Just adjusting my valuation slightly as I think there will be further compression of PE ratios.
Same assumptions as above but assuming a terminal 30x PE would give a valuation of $5.77.
A terminal 25x PE would give a valuation of $4.81.
Disc: Held IRL and on Strawman
Original Valuation
PWR is an interesting company focusing on building cooling systems mostly in automobiles but are pivoting into other opportunities such as aerospace and defence.
If they can grow NPAT at 15% per annum for the next 5 years (ambitious but some analysts have forecasts of greater than this) this gives:
Discounting this back 10% per annum gives us an FY22 price of $6.73.
A PE of 40x would have FY22 price of $7.65.
Currently do hold some shares purchased around current prices but wouldn't likely add unless the price started with a $7.xx.
While there is nothing untoward about the company investing for growth in future periods, even after the drop, the valuation looks rich against a backdrop of earnings going backwards due to large capital expenditure outlays over FY25 and 26.
It seems like there is room for the multiple (50x statutory and about 40x underlying earnings) to come down.
Reported Results after hrs with revenues and profits coming in softer versus consensus forecasts.
PWH: have spent some cash on the business expansion this generally dints the Revenue, Profit trend.
PWH is this a Buy?
The investments in headcount, factory space, equipment and systems are necessary to prepare PWR to deliver on our medium- and long-term growth objective, specifically growth in aerospace and defence, and is consistent with our approach to “invest now and collect later”
Opened down this morning
After hours announcement of FY24 results.
Prepare for some cheap shares since it was after hours.
[held]
In case no one noticed, about a weeks ago this appeared on the news
Now shares are back above $12! And possibly even more expensive than when the report came out
Hard to predict prices these days.
Out of curiosity, anyone got access to that report?
[held]
PWR Holdings (ASX:PWH) updated valuation of $ 8.50 based on their 1H FY24 results and Investor presentation released on 21/02/204.
All comparisons below are with the prior corresponding period 1H FY23
Basic Earnings of 9.74 c.p.s up from 7.77 c.p.s ; an increase of 25.4 %
Revenue increase of 22.2 % $64.2 m from $52.6 m
EBITDA increase of 27.2 % $18.4.m from $14.5 m
NPAT increase of 25.5 % $9.8 m from $7.8 m
Interim Dividend per share increase of 33% 4.80 cents from 3.60 cents
Aerospace and Defence revenue grew by 124% as the number and size of programs continues to increase.
Motorsport revenue grew by 19% due to increased demand for emerging technologies
Maintained its strong balance sheet with $15.6 million in cash as at 31 December 2023
Continue to hold here on SM and in real life.
PWR holdings reported their H1 FY24 results after hours last night. From their presentation:
A much better half compared to this time last year. Their increase in investments over the past year are starting to show through now. Seasonally 1H is always the weaker half with lower revenue and lower margins. Although net margins have improved back above 15% for the half. Overall net margins are usually around 20%.
Customer mix is improving with less than 50% of revenue coming from the motorsports segment showing their increasing footprint into aerospace and defence.
Overall I thought this was a very solid result given the increased investment of the past year and look forward to seeing the growth come through in future periods.
Disc: Held IRL and on Strawman.
Assumed 4 Growth Scenarios ranging from 25% down to 10% over next 5 years . Share Count 100.8m and Net margins of 20% which they have been historically. Blended together and discounted at 10% come up with Valuation $9.28.
Do not hold.
Inside Ownership Ordinary Shares % PWH Issued Net Value at $9.75
Kees Weel 18,891,505 18.8% $184.192m
Roland Dane 114,944 0.11% $1.12m
Jeffrey Forbes 20,000 0% $195K
Kym Osley 3,000 0% $29.25K
Amanda Holt 1,533 0% $14.9K
Total 19030982 18.94% $185.552m
Recent Management Buying/Selling
Sell 30 November 2023 Kees Weel 494,719 Shares on-market at $9.75 ($4,823,510.25)
Buy 27 November 2023 Amanda Holt 1,533 Shares on-market at $9.708 ($14,882.74)
Buy 24 November 2023 Kym Osley 3,000 Shares on-market at $9.778 ($29,334)
Buy 24 November 2023 Roland Dane 41,176 Shares on-market at $9.71 ($399,818.96)
Roland Dane- Independent Chairman, Non-Executive Director
Roland has extensive automotive business experience in the UK, Asia and Australia. Roland was the founder of, and remains the principle shareholder in, the Park Lane (UK) vehicle acquisition business in the UK some 35 years ago. He is also the Managing Director of the successful Triple Eight Race Engineering team, winning 8 out of the last 13 V8 Supercar championships.
Kees Weel - Managing Director and Chief Executive Officer
Kees Weel is the founder of PWR and has been awarded the 2021 Australian Performance Automotive Industry “Australian of the Year”. From the humble beginnings of hand making his first copper and brass radiator in 1982 to a visionary leader of PWR, Kees has led PWR on an extraordinary journey that has cemented PWR’s reputation globally for quality and innovative cooling products and unparalleled customer service.It was Kees inspiration to begin manufacturing radiators that quickly led to a ready-made customer base that required superior quality and capability from radiators. With an ever growing business and in-demand product, in 2006 Kees started building, what is today, PWR’s state of the art manufacturing facility at Ormeau. Kees’s uniquely Australian approach to business is his greatest strength, where no challenge is too big and an ethos that everything can be made with time, money and hard work. Following its listing on the ASX, Kees has continued to oversee the extraordinary growth of PWR while still maintaining its commitment to quality and customer service and that ‘family feel’ amongst employees. Kees continues to develop PWR’s business capabilities and leads his high performance team to be innovative, listen to the customer and always have a can do attitude. Printed in supersized letters on the wall at the Ormeau manufacturing facility is Kees’ motto: Most people see things as they are and say why. We dream of things that never were and say why not? Kees was a team principal of PWR Racing V8 Super Car Team 1998-2007 and was a board member for Tega V8 Supercars in 2007.
Jeff Forbes - Independent, Non-Executive Director
Jeff has over 30 years’ experience in senior finance and management roles with extensive mergers and acquisitions experience. Jeff retired in March 2013 as Chief Financial Officer, Executive Director and Company Secretary of Cardno Limited, an ASX-listed engineering consultancy company. Prior to joining Cardno, Jeff was Chief Financial Officer and Executive Director at Highlands Pacific and has previously held senior finance roles in the resources sector. Jeff holds a Bachelor of Commerce from the University of Newcastle and is a Graduate of the Australian Institute of Company Directors. Jeff is a Non-Executive Director of Cardno Limited, Intega Group Limited, Ventia Services and Chairman of Herron Todd White Australia and Herron Todd White Consolidated.
Kym Osley AM, CSC -Independent, Non-Executive Director
Kym brings to the Board over 45 years’ experience in the Defence Force and Defence industry. He has undertaken Defence strategic procurement and capability planning for the Defence Force as well as personally leading major Defence capability programs, including the $17B F-35 Joint Strike Program for Australia. Kym was Australia’s senior Air Force representative to the UK, and later was the senior Defence representative in the US engaging with the US military as well as with international major Defence companies. Kym flew operationally as a fast jet aviator in aircraft including the F-111, Phantom and F-18 and commanded at all levels through to two-star rank. He was deployed to the Middle East where he directed air operations for the Coalition with responsibility for over 400 aircraft and 25,000 staff. In his Reserve military capacity he has also led many overseas industry delegations to engage with overseas primes and military organisations to generate export contracts. Kym also worked for six years as a senior member of the Canberra PricewaterhouseCoopers firm where he was a strategic adviser to Defence for the $270B Force Structure Plan 2020 and led a team that planned the establishment of Defence Space Command. In 2019, Kym was awarded a Defence Industry Service Commendation by the Minister for Defence for his contributions to Defence and Defence Industry over many years.
Amanda Holt - Independent, Non-Executive Director
An accomplished and respected senior executive and defence industry leader, Amanda commenced her career in military systems engineering developing interoperable combat, communications and simulation systems for the Royal Australian Navy in roles at Adacel, ADI and Thales. She further developed her understanding of complex military systems when she joined Australian engineering and systems integration company, SYPAQ Systems in 2007. SYPAQ provided Amanda with the opportunity to work with capabilities such as naval shipbuilding, submarine systems, naval and army aviation, aerospace systems, land surveillance and autonomous Systems. Amanda was appointed SYPAQ’s Chief Executive Officer in 2015 after being General Manager, Defence and Aerospace and Chief Engineer for four years prior. Amanda was the recipient of the 2019 Female Defence Leader of the Year Award.
PWH released their FY23 results a few days ago, from their presentation:
I thought the result was pretty solid after a fairly disappointing 1H FY23. This year has been a year of investment in the business with the acquisition of several businesses to increase their footprint into Europe. The increase in net assets and lease liabilities reflects this.
Whilst 1H FY23 saw net margins fall below 15% as a result of this increase in spending and also the increased cost of raw materials. 2H FY23 saw a return to increased profitability with net margins improving to back above 20% again.
Management themselves have mentioned that with the increased investment, they will be able to support further growth with current capacity at their new site in Rugby (UK) only being 50% utilised at present.
Once again there was strong growth in emerging technologies with Aerospace and Defence now making up 9% of total revenue. This table below shows their Revenue by Customer Market.
Still lots of projects in the pipeline and interestingly as an F1 fan, I saw that they had secured the contracts for multiple teams for FY26. This is interesting as this is around the time that several major teams will be entering/re-entering the F1 scene. I believe given the growth of F1 in North America, there will likely be more than 10 teams on the grid, thus providing more teams for PWH to work with.
Will update my valuation shortly. Whilst the business seems to be back on track, shares are still quite expensive, and growth would need to continue into the future to support the current price.
Disc: Held IRL and on Strawman.
PWR Preliminary Final Report and 2023 Annual Report
Your new Chairman, Roland Dane, who has unanimous support of the Board, has substantial Board, leadership, operational and financial experience and has been a Board member since March 2017. Roland will take over as Chairman at the conclusion of the 2023 Annual General Meeting
Return (inc div) 1yr: 4.38% 3yr: 27.35% pa 5yr: 27.90% pa
PWH: returns are like the leaky radiator at the moment. Engine light is amber!!! not red yet...
PWR Holdings (PWH) released their 1H FY23 results after market yesterday. From their presentation:
Probably not the best result considering before the results release they were trading on a PE of around 60x. Management stated that increase labour costs and raw material costs impacted the bottom line. They also spent money to expand into Europe in the last half.
I think in the long term PWH should benefit from the current investment period. Their business is relatively capital intensive, needing to purchase assets in order to scale up their business, and so it remains to be seen whether this level of investment will pay off in years to come.
Shares are still too expensive (even after today's pullback) for mine. I did sell around half of my shares at above $11 around a month ago as I thought the valuation was looking stretched then. At under $7 I think I will likely top up my holdings but they remain a solid hold at the moment. Still lots of projects in the pipeline.
Disc: Held IRL and on Strawman.
@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
I sold out of PWR Holdings today. This is a super high quality business with founder management (this is no secret to the market). And this sell is counter to the mantra that "the vast majority of losses in the stock market come from picking the wrong business, not the right business at the wrong valuation". But as I tried to justify the current price multiple ways, and apart from hoping for continued increase in sentiment, I couldn't see where my returns were going to come from. Currently trading on 55x earnings, there is a lot baked in at these levels. The company has compounded its earnings by just over 18% CAGR over the last 5 years. If we assume this continues for the next 5 years, the company would be earning 48c per share. From the current share price of $11.97 an average market return of 10% would mean it trades at $19.28 in 2027. For this to happen, I would need the stock to be trading at over 40x earnings of 48c at that point. I dont think thats a bet I want to take. Even if I was hyper bullish and thought the company could compound its earnings at 30% CAGR. Its earnings would be 78c and need to trade at 25x at that point, which is still not cheap. The management itself has also said they expect the revenue growth to be moderate for FY23 and beyond.
I understand demand for their cooling systems will be increasing with electric cars, defense, aerospace, data centers etc. The company is very innovative and always looking for the next opportunities with a long term mindset. But I believe the market has fallen in love with this stock too much and returns from this level will not be sufficient for me. Id like to buy back in, if the price comes back substantially. Hopefully it does.
PWR Holdings (PWH) released their FY22 Results ahead of their conference call tomorrow morning. From their release:
A bumper H2FY22 saw a record result for the company as they ticked over $100m in revenue for the first time. NPAT was also a record. Cash flow was a little lower due to increase in spending due to supply chain constraints although management have said that this will ease as supply chains revert back to normal.
I have updated my chart from the previous straw to reflect the full year results.
If you ignore FY20 which was covid impacted, NPAT has compounded at 15% for the last 5 years and shows the quality of this company to execute their goals.
I will update my valuation accordingly.
Full presentation here
Disc: Held IRL and on Strawman.
PWR Holdings (ASX:PWH) released their results for H1 FY22 after hours yesterday. From their release:
Overall a decent result given current covid headwinds driven mostly by a return in motorsports to a more normalised race program. I have graphed out their revenue growth and NPAT growth for the last few years below.
H2 is seasonally the stronger half so it will be interesting to see if they can maintain the growth. I still see a very long run way for this company as their cooling systems can be used in a multitude of applications and we are only just starting to see this playing out (emerging technologies grew by 36% but is only 14% of overall revenue).
I will maintain my valuation (see my valuation straw) as I still think currently shares are a bit overvalued but am a happy holder at current levels.
Disc: Held IRL and on Strawman
PWR Holdings (ASX:PWH)
PWR produces advanced cooling systems to the motorsports, aerospace/defence sector. Also derives part of its revenue from OEM and automotive aftermarket segments. Basically - super niche, high tech/IP company run by founder/MD Kees Wheel.
Financials
Insider Holdings
Summary
Long standing holder of PWR with impressive results from a disciplined organisation whom have good prospects in niche automotive / air space. Growth in US strong and launching online as we speak .
Culture a clear strength reflective in financial results
Shares on issue has remained steady at 100m
Debt has always remained minimal 1.7mill. Cash $19.857mill
Rev 2016 = 46.6mill - 79.2 2021
EBIT 2016 = 13mil - 21mil 2021
Operating Margin 2016 = 30% grown to 36% in 2021
Div 2016 4c - 9c 2021
EPS 2016 9c - 2021 15c
PWR had a large "Staff Wanted" sign up at the front of their Ormeau office as I drove by. I thought I'd do a search of Seek as this is a company on my watchlist. The following jobs came up:
TIG Welder
CNC Machinist
Graduate Accountant
CNC Programmer
School Leaver Program
Manufacturing Production Assistant
Chef
The company states the need for new staff is due to "Exponential growth at PWR has opened up an exciting career opportunity for..."
The company offers "Fully catered meals from our onsite diner, morning tea & lunch provided". This was highlighted in a podcast featuring Emma Fisher of Airlie Funds where she mentioned the company having a strong culture and management wanting employees to have access to healthy, nutritious food. It also explains why they're hiring a chef.
Management see a bright future for the company stating they offer a "Long Term career path within a growing global business" and "we are searching for candidates who are looking for a long stable career"
"Fully Funded Apprenticeships" are available as well; however, I'm unsure if this is the norm in Australia?
With over 300 staff, this number of new jobs listing may not be significant but it was interesting to take a look at their hiring process, the benefits they offer and their outlook for the company.
H1 FY21 performance places us in a strong position for full year FY21 • Revenue $37.2m up 25% on pcp. Growth across all primary categories with 51% of revenue growth coming from emerging technologies and OEM categories
Increased dividend
• Fully franked interim dividend of 2.80 cents per share – an increase of 47% on pcp.
Cash flows
Presentation
https://www.asx.com.au/asxpdf/20210219/pdf/44stkpvhqf4mml.pdf